The impact of plan and sponsor characteristics on pension funds’ asset allocation and currency diversification

Defau, Laurens; Moor, Lieven De

doi:10.1057/s41260-017-0058-3

Cited by 10 publications

(6 citation statements)

References 18 publications

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“…The model attempts to control for the impact of risk on flow by the annualized standard deviation of the monthly pension fund returns of the past 12 months. Additionally, size could affect the flow-performance relationship (Chevalier and Ellison, 1997) and improve diversification (Defau and Moor, 2017). DelGuercio and Tkac (2002) argue that the presence of a significant relationship would signal the importance of agency relationship or client servicing.…”

Section: Methodsmentioning

confidence: 99%

“…Size could also contribute to the visibility of the fund and signal a better reputation (Jain and Wu, 2000; Sapp and Tiwari, 2004; Alves and Mendes, 2010). Investors could also be choosing large plans for risk reduction through better diversification, as documented by Defau and Moor (2017). Visibility and reputation could also change with the age of the pension plan and affect the fund inflows.…”

Section: Methodsmentioning

confidence: 99%

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Private pension fund flow, performance and cost relationship under frequent regulatory change

Erzurumlu

Ucardag²

2021

JFRC

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Purpose This paper aims to investigate private pension fund investor sentiment against fund performance and cost in an environment of frequent regulatory changes. The analyses are conducted in a low return, high-cost private pension fund market environment, which makes it easier to observe the relationship between investor sentiment to return and cost. Design/methodology/approach This paper conducts fixed effect, random effect and random effect within between effect panel data analyses of all Turkish private pension funds from 2011 to 2019. This paper conducts the analyses using aggregate data and subsets based on fund characteristics and pre-post regulation periods. Findings When regulations provide compensation and improve market efficiency in a pension fund market, investor focus shifted from performance to cost. Investors allocated assets with respect to return realization when adequately compensated for risk or had favorable cost contract clauses. Consequently, investors in pension funds with lower expected returns and no special fee reduction clauses tended to adopt the strategy of cost minimization. Research limitations/implications The overlap of regulatory change periods could complicate the ability to distinguish the impact of any one specific change. The findings therefore cannot be generalized to differently structured markets. Practical implications Regulatory changes could lead to a switch of investor objectives. When regulatory changes compensate investors and increase market efficiency, investors objective could switch from performance to cost. Originality/value This study investigates investor sentiment in a relatively young private pension fund market, in which the relevant regulatory body ambitiously implements frequent changes in regulation. The selected market is unique in the sense that it has negative real returns and high costs, which make investor focus to return and cost more readily apparent.

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Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Private pension fund flow, performance and cost relationship under frequent regulatory change

Erzurumlu

Ucardag²

2021

JFRC

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“…In particular, he argues that in the absence of taxes, risk-sharing, and default insurance, the allocation to equity versus debt is determined solely by the risk-return preferences of the trustee and/or the employer. Similarly, Defau and de Moor (2018) find that employers (employees) that pay higher contributions to pension tend to have a higher (lower) allocation to risky assets. In addition, to fund characteristics, research has also shown that regulatory framework is also a determinant in pension fund asset allocation.…”

Section: Introductionmentioning

confidence: 91%

Alternative Asset Holdings by US Pension Funds Since the 2008 Financial Crisis

MacLean¹

2019

IJBSS

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Since the 2008 Financial Crisis, the percentage of alternative assets held by institutional investors has increased dramatically. The current study analyzes both the drivers and impacts of this increased allocation to alternative assets on US pension funds. Results indicate a significant divergence in asset allocations since the 2008 Financial Crisis. However, naïve simulation analysis shows that, despite the argued motivation for the adaptation of alternatives by market research, those funds that adopted the highest level of alternatives would have actually performed worse during the 2008 Financial Crisis than those funds that made only modest allocation changes since that time.

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“…Finally, we have also included the pension funds' total assets in our analysis, since previous authors concluded that larger pension funds invest more in risky assets. For a comprehensive overview of this literature, see Defau and De Moor (2018). In Table 4, we present the average pension fund size per year in million dollars.…”

Section: Datamentioning

confidence: 99%

The investment behaviour of pension funds in alternative assets: Interest rates and portfolio diversification

Defau

Moor

2020

Int. J Fin Econ

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In the last decades, pension funds and other institutional investors have significantly increased their allocations to alternative assets: however, until today, there is no empirical research that evaluates this growth. In the pension fund industry, experts point at two important reasons for the growing interest in alternative assets: historically low interest rates and trends in portfolio diversification. The aim of this article is to assess whether these factors actually have an impact on the investment behaviour of pension funds in alternative assets. For this article, we analysed the CEM Benchmarking Inc. database with pension funds from North America, Europe, Australia, and New Zealand. The empirical analysis includes 890 pension funds for the period 2000–2015. The results confirm that portfolio diversification trends play an essential role in the growing popularity of alternative assets, most probably because these assets allow the pension funds to optimize their portfolio structure. Furthermore, our results reject the popular belief that pension funds have increased their allocations to alternative assets because of the low interest rate environment; in contrast, our findings suggest that pension funds invest more in alternative assets when interest rates are higher.

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The impact of plan and sponsor characteristics on pension funds’ asset allocation and currency diversification

Cited by 10 publications

References 18 publications

Private pension fund flow, performance and cost relationship under frequent regulatory change

Private pension fund flow, performance and cost relationship under frequent regulatory change

Alternative Asset Holdings by US Pension Funds Since the 2008 Financial Crisis

The investment behaviour of pension funds in alternative assets: Interest rates and portfolio diversification

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