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Pension Funds and Drivers of Heterogeneous Investment Strategies

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  • Dirk Broeders
  • Kristy Jansen

Abstract

We use bias-free data to analyse the investment strategies of pension funds with similar objectives by measuring their factor exposures within equity and fixed income portfolios. We find substantial heterogeneity in these factor exposures reflecting annual return differences of 1.31-2.35 percentage points. Following our mean-variance optimization model, we find that the funding ratio, risk aversion, and liability duration explain 36 percent of this heterogeneity. We attribute the remaining 64 percent to differences in beliefs that pension funds disclose through their contracting of asset management firms. Beliefs therefore have important economic implications for beneficiaries who cannot freely choose a pension fund.

Suggested Citation

  • Dirk Broeders & Kristy Jansen, 2021. "Pension Funds and Drivers of Heterogeneous Investment Strategies," Working Papers 712, DNB.
    • Handle: RePEc:dnb:dnbwpp:712
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    More about this item

    Keywords

    G11; G23;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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