P&I EDHEC Research for Institutional Money Management April 2022
Written on 13 Apr 2022.
EDHEC-Risk Institute just published the latest special issue of the EDHEC Research for Institutional Money Management supplement to Pensions & Investments.
We aim to provide institutional investors with an academic research perspective on the most relevant issues in the industry today.
In the first article, prepared as part of the Bank of America “Decumulation Investing: Taxonomy, Axiomatic Framework and Financial Engineering Solutions” research chair at EDHEC-Risk Institute, we show how the retirement bond, a dedicated safe asset, can help with retirement planning. The retirement bond allows retirees to calculate how much income they can generate from their retirement pot. The retirement bond itself can be regarded as the risk-free asset for those who want to secure income for a predetermined period, e.g., for the first 10, 20 or 30 years in retirement. For these reasons, the retirement bond and its price appear to be key ingredients in the design of sustainable and efficient spending and investment strategies in decumulation.
Our second article looks at a problem that arises in the decumulation phase of retirement, namely that relatively little is known about the interaction between withdrawal and investment strategies. In research supported by Bank of America, our specific goal is to identify whether some withdrawal strategies are more suitable than others as a function of the level of risk-taking in the investment portfolio. Overall, we found that state-dependent withdrawal strategies that take into account “bad states of the world” such as poor market performance (low liquid wealth) or high expected time to live display better results than the fixed withdrawal strategy
Next, when asset managers are criticized for greenwashing, the answer is often that greenwashing is only an issue for passive investments, while active strategies – particularly active ownership – can fix all these problems. We study to what extent institutional investors’ ownership affected corporate carbon emissions in 68 countries for the period from 2007 to 2018 and find that institutional investment, on average, does not appear to lead to any tangible carbon footprint reduction
In a fourth article, we explore the optimal design of personalized performance portfolios for liability-driven investors in research that was supported by First Rand Bank. Our analysis suggests that investors would benefit from the availability of “precision investing portfolios” tailored to their specific circumstances, as opposed to being left with portfolios that focus on standalone performance. It helps shift the emphasis away from investment products toward genuine investment solutions.
In an article on replicating real estate indexes prepared as part of the Swiss Life Asset Managers France “Real Estate in Modern Investment Solutions” research chair at EDHEC-Risk Institute, we find that it is possible to track the EDHEC IEIF Commercial Property (France) Index with a satisfactory degree of accuracy over long-term horizons by constructing a buy-and-hold and cap-weighted portfolio of 10 to 15 SCPIs, thereby mitigating the liquidity constraints of the French non-listed real estate fund market. Our proposed replication method does not require any modeling or any data-intensive calculation and is, therefore, expected to be robust.
Finally, we ask whether ESG investing improves risk-adjusted performance. We argue that ESG strategies should be valued for the unique benefits that they can provide, such as making a positive impact on the environment or society, as opposed to being promoted on the basis of disputable claims regarding their outperformance potential.
The latest issue of the EDHEC Research for Institutional Money Management supplement to P&I proposes the following articles:
- The Retirement Bond: How a Dedicated Safe Asset Can Help with Retirement Planning
- Retirement Investing: Identifying Efficient Withdrawal Strategies
- Active Ownership as a Greenwashing Tool Rather than a Climate Change Solution
- Precision Investing: How to Design Optimal Personalized Performance Portfolios for Liability-Driven Investors
- Replication of Real Estate Indexes – Evidence from the French Property Investment Market
- Does ESG Investing Generate Outperformance?
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P&I EDHEC Research for Institutional Money Management April 2022
About EDHEC
Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the world’s top 15 business schools. Fully international and directly connected to the business world, EDHEC commands a strong reputation for research excellence and the ability to train entrepreneurs and managers capable of breaking new ground. EDHEC functions as a genuine laboratory of ideas and produces innovative solutions valued by businesses. The School’s teaching is inspired by its research work and a focus on “learning by doing”, all with the aim of equipping people with the skills to succeed in business.
