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Investment management
Investment managers need an investment process in sync with theory
(Damodaran 2007)
Upward potential for good governed pension funds (Ambachtsheer
2007), best governed pension funds focus on coherence, process and
people (Roger and Urwin 2007)
Strategic management:
Identifying core competences, aligning organization
Investment Beliefs
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If not
It becomes difficult for trustees to evaluate new developments,
and whether to embed them in their own strategies
More likely to join the herd, increasing costs and opportunity
costs along the way
Investment Beliefs
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Vanguard
Investment Beliefs
Page 4
Research set up
Our paper investigates
What investment beliefs are out there
How do investment beliefs of pension funds and asset managers
differ
Can we say something about their link to performance
Data collection
Web site, (annual) report, presentations collections
Focus on largest asset managers and pension funds
Scope: publicly reported beliefs (the explicit ones)
Investment Beliefs
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Theory
Investment Strategy
Organization
EXAMPLE
Overreaction
Investment Beliefs
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Investment Beliefs
Page 7
Investment Belief
Theory
Investment Strategy
Theory
Investment Strategy
Organization
Organization
Investment Belief
Investment Beliefs
Theory
=
Investment Strategy
Organization
Page 8
North America
Pensionfd
Assetmng
11
Pensionfd
Assetmng
10
Investment Beliefs
Pensionfd
Assetmng
Page 9
Investment
Investmentprocess
process beliefs
beliefs
Risk
Riskpremium
premium
Impact,
Impact, focus
focuson
on management
management
Risk
Riskdiversification
diversification
decisions
decisions
Risk
Risk management
management
(In)efficiencies
(In)efficienciesin
in financial
financialmarkets,
markets,
Asset
Asset pricing
pricing
Horizon
Horizon
Organizational
Organizational beliefs
beliefs
Investment
Investment management
management style
style
Costs
Costs
Sustainability
Sustainabilityand
andGovernance
Governance
Teams,
Teams, role
role of
of investment
investment managers
managers
Sustainability
Sustainabilityand
and Corporate
Corporate
Out
Out vs.
vs. insourcing
insourcing
Governance
Governance in
in asset
assetpricing
pricing
Role
Role in
in investment
investment process
process
Experience
Experience
Investment Beliefs
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PGGM
Investment Beliefs
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PensionDanmark
Investment Beliefs
Page 12
OTPP
Investment Beliefs
Page 13
ABN Amro
Investment Beliefs
Page 14
Investment Beliefs
Page 15
Asset manager
Risk diversification
Inefficiencies
Risk premiums
Focus
Responsible
Investments
Impact
Risk man.
Active
management
Teams and staff
Goals
Investment Beliefs
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Investment Beliefs
Page 17
Forging a link
Investment Belief
Theory
Investment Strategy
Organization
Performance
Performance
measures
measures
Return-risk ratio
Risk diversification
Asset diversification
Horizon
3, 5, 8 years periods
Alpha
Investment Beliefs
Expense ratio
Page 18
Descriptives
Pension funds create alpha
Investment Beliefs
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Pension funds create high return/risk
Investment Beliefs
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Links exist
Between several investment beliefs and structural
performance measures.
Organization with investment beliefs on risk diversification also show
better return-risk performance measures, but also lower costs.
Focus pays off.
Funds that hold a clear view on how risk management is organized,
usually in combination with a view on the management style, realize
higher alpha and return/risk ratios than funds that do not hold such
views.
Investment Beliefs
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Some caveats
Small sample, yet the broadest so far
Performance measures are relatively crude, managers
might have other performance measures in mind
Weve collected the explicit reported ones, what about
the non-reported implicit ones? Every pension fund
holds them per definition.
Investment Beliefs
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Summarizing
Investment beliefs: still relatively unexplored?
Developing a set of investment beliefs makes sense from a strategic perspective:
an organization has to identify where and how it does add value to the investment
process.
Structure emerges
Beliefs about the financial markets, investment process, organization, and
sustainability and corporate governance.
Investment Beliefs
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Investment Beliefs
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