JOIM-Oxford-EDHEC Retirement Investing Conference

EDHEC-Risk Institute, The Journal of Investment Management (JOIM) and Oxford University have joined forces for the first time to feature the most relevant academic insights with an immediate as well as a future impact on the practice of Retirement Investing.

The JOIM-Oxford-EDHEC Retirement Investing Conference will take place on 11, 12 and 13 September, 2016 on the Oxford University Campus and showcases the highest quality thinking and research in the area.



The programme is developed on a foundation of academic rigour with an overriding objective of identifying practical significance.

On September 11, the conference will start with a welcome dinner and will feature the Nobel Prize recipient Robert Merton as keynote speaker.

On September 12, the conference will open with a round-table session moderated by Liam Kennedy, Editor of Investment & Pensions Europe and involving the participation of several distinguished industry speakers, including Mark Fawcett (CIO, NEST Corporation) and Joanne Segars (Chief Executive, Pensions and Lifetime Savings Association), as well as selected asset managers (sponsorship).

The conference will then continue with seven, well-focused academic presentations from prestigious speakers including Deborah Lucas from the MIT Sloan School of Management, Magnus Dahlquist (Stockholm School of Economics), Elroy Dimson (London Business School), Tim Jenkinson (University of Oxford), Martin Leibowitz (Morgan Stanley Research), Mark Kritzman (Windham Capital), and Lionel Martellini, EDHEC-Risk Institute:

On Getting More Retirement Income Benefits from the Retiree’s Assets: Annuities and the Reverse Mortgage
There are only four ways to improve the chances for achieving a good retirement:
• Save more for retirement and lower lifetime consumption level
• Work longer before retiring
• Take more risk and be prepared for the consequences if the risk is realised
• Improve the income benefits from the assets available from saving for retirement
The keynote speech will explore the potential to significantly improve income benefits from retirees’ assets by using life annuities and reverse mortgages (aka equity release; home pension). The focus is on creating an efficient design structure that works effectively across geo-political borders, including marketing of the products and providing large and reliable funding sources for them.

New Developments in Retirement Investing

Mass Customisation versus Mass Production in Retirement Investment Management: Addressing a “Tough Engineering Problem”
A massive shift from defined-benefit to defined-contribution pension schemes around the world has left millions of individuals with an increasing responsibility with respect to retirement investment decisions. While many off-the-shelf retirement products are currently produced on a large scale, the challenge for the investment management industry is to offer scalable forms of dedicated retirement solutions. We argue that there are in fact two distinct dimensions of scalability, the cross-sectional dimension and the time-series dimension, and we show how suitable financial engineering techniques can be used to address both dimensions so as to allow for efficient mass-customisation in retirement investment management.

Funding Ratio Flaws
The pension community has come to rely on the “Funding Ratio” (the ratio of Assets to Liabilities) as a guide to the health of Defined Benefit plans. However, this metric is vulnerable to a number of basic misconceptions. At the outset, liabilities are typically discounted by a rate that represents something less than a full risk-free defeasance of the projected benefit payments. Quite apart from this problem, an even more serious issue is that the funding ratio itself is not subject to any reserving or downward adjustment for the riskiness of the stated (or allocation-implied) investment strategy. This talk will describe the problems that can result from these misspecifications and indicate various approaches for developing improved metrics.

This presentation describes the sources of estimation error in portfolio construction, including small-sample error, independent-sample error, mapping error, and interval error. It then describes a non-parametric procedure for incorporating the relative stability of covariances into the portfolio formation process, and it presents evidence that this procedure yields more stable portfolios than approaches that ignore errors or rely on Bayesian shrinkage. Finally, it discusses the implications for factor investing.

Hacking Reverse Mortgages
Reverse mortgages hold the promise of unlocking home equity to help meet retirees’ spending needs while allowing them to age in place. Despite the product’s potential as significant source of liquidity and insurance, the reverse mortgage market has been slow to take off. In the U.S., the HECM—a product designed and administered by the federal government—dominates the market. We develop a valuation model for HECMs and use it to suggest an answer to the reverse mortgage puzzle: why is it that a seemingly useful and subsidised product is so unpopular? The analysis suggests a financial explanation may be an important component of the answer: The loans are expensive for borrowers. There is a government subsidy, but the benefits are largely captured by the guaranteed private lenders. Structural changes to the programme are proposed that could lower cost and improve the product’s functionality and appeal.

Ask a Consultant? The Role of Investment Consultants in Pension Fund Governance
Investment consultants have a significant influence on the asset allocation decisions of pension fund trustees. Yet they also face conflicts of interest, and these are becoming more acute as the investment consultancies offer asset management solutions via “fiduciary management”. This talk will discuss the complex yet critical role investment consultants play in institutional asset management, whether financial regulators should focus more attention on their activities, and recent research on whether investment consultants add value for pension funds.

On the Asset Allocation of a Default Pension Fund
This talk characterizes the optimal default fund in a defined contribution (DC) pension plan. It begins by analyzing detailed data on individuals and their holdings inside and outside the pension system and finds substantial heterogeneity among default investors in terms of labor income, financial wealth, and stock market participation. It then presents a life-cycle consumption-savings model incorporating a DC pension account and realistic investor heterogeneity. Finally, it considers the optimal asset allocation for different realized equity returns and investors, and compares it with age-based investing. The optimal asset allocation leads to less inequality in pensions while it moderates the risks through active rebalancing.

Does Hiking Damage Your Wealth?
Investors are preoccupied with the impact on financial markets of changes in central-bank interest rates. We use over a century of daily US returns together with 85 years of UK data to examine the immediate effect of rate hikes and cuts on stock and bond markets. We also look globally at the impact of interest rate changes on equity and bond returns using annual data for 21 countries from 1900 to 2015. Using a trading strategy that avoids look-ahead bias, we compare returns over entire interest rate hiking and easing cycles for equities, bonds, bills, currencies, and risk premia. We analyze long-term returns from industry sectors and factors such as size, value, carry and momentum, and also study real asset returns since 1900 on precious metals, collectibles and real estate. In all cases, hiking cycles damage your wealth compared to easing cycles.

Downloald the full programme of the JOIM-Oxford-EDHEC Retirement Investing Conference