November 2022
11Nov

Liquidity crunch tops institutional investors’ greatest tail risks

The top three tail risks for global institutional asset owners are an unexpected liquidity crunch, a military conflict in the Asia-Pacific region and a major cyberattack, according to a new survey conducted by PGIM, the money management subsidiary of Prudential Financial. The survey of 400 senior investment officials at asset owners representing more than $12 trillion in assets shows the greatest common level of concern is a liquidity crunch in capital markets resulting in a market crash, according to a...

November 11, 2022
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03Nov

Risk Pooling and Precautionary Saving in Village Economies

By Marcel Fafchamps & Aditya Shrinivas We propose a new method to test for efficient risk pooling that allows for intertemporal smoothing, non-homothetic consumption, and heterogeneous risk and time preferences. The method is composed of three steps. The first one allows for precautionary savings by the aggregate risk pooling group. The second utilizes the inverse Engel curve to estimate good-specific tests for efficient risk pooling. In the third step, we obtain consistent estimates of households' risk and time preferences using...

November 3, 2022
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October 2022
28Oct

Optimal Savings and Portfolio Choice with Risky Labor Income and Reference-Dependent Preferences 

By Servaas van Bilsen, Roger J. A. Laeven & Theo Nijman This paper explores the joint impact of reference-dependent preferences and non- tradable risky labor income on optimal savings and portfolio decisions. We develop a non-trivial solution procedure to determine the optimal policies. Our results reveal that the impact of permanent labor income shocks on both the optimal savings rate and the optimal portfolio share is more pronounced under reference- dependent preferences than under CRRA preferences. In particular, we find...

October 28, 2022
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27Oct

Milliman analysis: Competitive pension risk transfer buyout rate rises 320 basis points to 100.1% during September

Competitive bidding process saves about 3.0% of buyout costs as of September 30 Milliman, Inc., a premier global consulting and actuarial firm, today announced the latest results of its Milliman Pension Buyout Index (MPBI). As the Pension Risk Transfer (PRT) market continues to grow, it has become increasingly important to monitor the annuity market for plan sponsors that are considering transferring retiree pension obligations to an insurer. During September, the estimated cost to transfer retiree pension risk to an insurer in...

October 27, 2022
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19Oct

Dutch central bank urges pension funds to guard against UK-style crisis

The Dutch central bank is calling on the country’s pension funds to consider boosting holdings of cash and other liquid assets to ensure that they can avoid the turmoil that has hit the UK. Officials at the De Nederlandsche Bank have asked local retirement funds to check for signs of stress, recommending that they review liquidity rules and report on any need for fire sales of assets, people briefed on the matter told the Financial Times. The move comes as UK...

October 19, 2022
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17Oct

Economic Concerns Likely to Spur Pension Risk Transfers

The vast majority of plan sponsors say inflation and rising rates are influencing their de-risking decisions. Inflation, market volatility, rising interest rates, and geopolitics are potentially accelerating the pension risk transfer market, according to a report from MetLife. MetLife’s Pension Risk Transfer Poll, which heard from 251 defined benefit plan sponsors who have de-risking goals and $100 million or more in plan assets, found that 95% say higher inflation is “very or somewhat impactful” on their decision to move forward with...

October 17, 2022
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14Oct

Herd Behaviour of Pension Funds by Asset Class

By Jacob Antoon Bikker & Ian Koetsier This study investigates asset herd behaviour for Dutch pension funds from 1999 to 2014 using quarterly data. We find herd behaviour for investments in twenty asset classes including non-traditional asset classes, and to both purchasing and selling. Pension funds’ herd behaviour is particularly high in alternative investments, which might increase herding in general, as pension funds move their portfolio towards these assets in recent years. Herding intensity is higher during stock market crises,...

October 14, 2022
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14Oct

Liability Driven Investment and Asset Allocation inspired by JPM LTCMA

By Eddy H. Verbiest A white-box deterministic system simulates long-term LDI cashflows using as input J.P.Morgan Long Term Capital Market Assumptions adapted to make them interest rate dependent. Trading, coupons and dividends provide cashflows to pay liabilities and extract excess cash to stakeholders while maintaining the allocation weights and target lifes. Performance is measured by FixPct: the annually extractable Fixed Percentage of remaining liabilities to run-off to zero. This measure summarizes the interplay of drivers over many decades and allows...

October 14, 2022
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12Oct

Reforma Previsional en Chile: una demanda pendiente

Las AFP, o Administradoras de Fondos de Pensiones, cumplieron 42 años de funcionamiento. Antes existía en nuestro país un sistema de pensiones de reparto (sistema que se financia con los aportes que realizan los trabajadores activos y el Estado, por lo tanto el dinero aportado va a un fondo común con el cual se pagan las prestaciones; este sistema se concibe bajo los principios de solidaridad intergeneracional e intrageneracional), que agrupaba a un conjunto de cajas previsionales. Existía un consenso,...

October 12, 2022
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12Oct

Global financial instability risk hits new heights – IMF

A series of "cascading shocks" have raised the risk of global financial instability to new levels, officials with the International Monetary Fund said Tuesday. "It's difficult to think of a time where uncertainty was so high," Tobias Adrian, director of the IMF's monetary and capital markets department, said at a press briefing on the IMF's October 2022 Global Financial Stability Report. "The kind of risk we are flagging is the highest, outside of acute crisis," Antonio Garcia Pascual, deputy division chief...

October 12, 2022
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