We investigate asset-allocation strategies open to members of defined-contribution pension plans with a model that incorporates asset, salary (labour-income) and interest-rate risk. We propose a novel form of terminal utility function, incorporating habit formation, that uses the member’s final salary as a numeraire. The paper discusses various properties and characteristics of the optimal asse...

We examine the form, adoption rates, and economic rationale for various mutual fund investment restrictions. A sample of U.S. domestic equity funds from 1994 to 2000 reveals systematic patterns in investment constraints, consistent with an optimal contracting equilibrium in the fund industry. Restrictions are more common when (i) boards contain a higher proportion of inside directors, (ii) the ...

We propose three analytic approximation methods for numerical valuation of the guaranteed annuity options in deferred annuity pension policies. The approximation methods include the stochastic duration approach, Edgeworth expansion and analytic approximation in affine diffusions. The payoff structure in the annuity policies is similar to a quanto call option written on a coupon bearing bond. To...

Financing through crowdfunding is growing rapidly, especially for start-ups. Investment financing via crowdfunding is integrated with the real side of the firm as future consumers may potentially provide all or part of the required resources. We derive the optimal pre-sale crowdfunding contract of a financially constrained monopolist and analyze its implications for production, investment and w...

This paper proposes a computationally efficient algorithm for quantifying the impact of interest-rate risk and longevity risk on the distribution of annuity values in the distant future. The algorithm simulates the state variables out to the end of the horizon period and then uses a Taylor series approximation to compute approximate annuity values at the end of that period, thereby avoiding a c...

Real estate is the most important alternative asset class for pension funds and represents on average more than five percent of their total holdings. We employ a previously unexplored international database to examine the investments of some 880 pension funds in direct real estate and REITs over the 1990-2009 period. We document that larger funds are more likely to invest in real estate interna...

We show that fund families allocate their fund managers to different market segments such that their skill is rewarded best. Whether a fund manager’s skill is rewarded by higher alpha depends on the efficiency of the market segment in which she works. Even skilled managers can generate alpha only if the market segment is inefficient. Fund families take this relation between skill and inefficien...

The magnitude of mutual funds’ business ties with their portfolio firms is documented and is linked to funds’ proxy votes at specific firms and to overall voting practices. Aggregate votes at the fund family level indicate a positive relation between business ties and the propensity to vote with management. Votes at specific firms, however, reveal that funds are no more likely to vote with mana...

We analyze the risk, return and cash flow characteristics of infrastructure investments by using a unique dataset of deals done by private-equity-like investment funds. We show that infrastructure deals have a performance that is higher than that of non-infrastructure deals, despite lower default frequencies. However, we do not find that infrastructure deals offer more stable cash flows. Our pa...

This paper shows how a mean variance criterion can be applied to a multi period setting in order to obtain efficient portfolios in an asset and liability context. The optimization model allows for rebalancing activities, transaction costs, stochastic volatilities for both assets and liabilities. Furthermore, a general framework for the projection of pension fund liabilities as well as for the g...