Essays on Pension Fund Management and Real Estate Investment

Transcription

1 Essays on Pension Fund Management and Real Estate Investment Inaugural-Dissertation zur Erlangung des Doktorgrades des Fachbereichs Wirtschaftswissenschaften der Johann Wolfgang Goethe-Universitat Frankfurt am Main JOHANN WOLFGANG \&f GOETHE UNIVERS1TAT FRANKFURT AM MAIN vorgelegt von Ralph Rogalla aus Berlin Frankfurt am Main Februar 2008

2 Contents Table of Contents List of Original Papers List of Figures List of Tables List of Symbols List of Abbreviations III VII VII X XIII XVI 1 Introduction Challenges in the Pension Arena Real Estate Investments in Pension Plans Research Question and Organization Executive Summary Chapter 2: "Return and Risk of German Open-End Real Estate Funds" Chapter 3: "Funding the German Civil Servant Pension Plan: Optimal Asset Allocation and Cost Implications" Chapter 4: "Managing Contribution Risk in Public Defined Benefit Plans under Conditional Value at Risk Constraints" Chapter 5: "Understanding and Allocating Investment Risks in a Hybrid Pension Plan" 11 2 Return and Risk of German Open-End Real Estate Funds Introduction 15 III

3 IV PENSION FUND MANAGEMENT & REAL ESTATE INVESTMENT 2.2 Open-End Real Estate Funds in Germany Size and Role in the Mutual Fund Market Legal Environment and Regulations Problems Resulting from the Open-End Architecture of Real Estate Funds Statistical Properties of Real Estate Funds Returns Data Collection and Description Univariate Analysis Serial Correlation of Real Estate Fund Returns Correlation Analysis Risk and Return Profiles of Investments in Real Estate Funds Research Design and Methodology Single Investment Considerations Replicability of the Real Estate Fund Performance Real Estate Funds within a Mixed-Asset Portfolio Methodology Results Conclusions and Avenues of Further Research 44 3 Funding the German Civil Servant Pension Plan: Optimal Asset Allocation and Cost Implications Introduction Civil Servant Pensions in Germany Pension Plan Design Dataset Description Deterministic Actuarial Valuation of Public Pensions Objectives and Economic Assumptions Population Dynamics Implied Pension Debt for Current Civil Servants Funding Future Civil Servants' Pensions Pension Plan Management in a Stochastic Environment Plan Design, Pension Manager's Objectives, and Asset/Liability Modeling 59

4 TABLE OF CONTENTS V Stochastic Asset Model Optimal Asset Allocation under Stochastic Investment Returns Further Results Conclusions 74 Appendix 75 4 Managing Contribution Risk in Public Defined Benefit Plans under Conditional Value at Risk Constraints Introduction Civil Servants and their Pensions in Germany Public Sector Pension Parameters Dataset on Hesse's Civil Servants Valuing the Public Pension in a Non-Stochastic Framework Population Dynamics and Economic Assumptions Funding Future Civil Servants' Pension Benefits Stochastic Investment R.eturns and Pension Plan Funding The Pension Manager's Objectives and Asset/Liability Management Stochastic Asset Model Public Pension Plan Control in a Stochastic Framework Worst-Case Pension Costs and Contribution Rate Risk Deriving the Optimal Contribution Rate and Asset Allocation Development of Contribution Rates over Time Further Results Conclusions 106 Appendix Understanding and Allocating Investment Risks in a Hybrid Pension Plan Introduction Designing a Hybrid Pension Plan Ill General Plan Parameters Ill Benefit Structure 112

5 VI PENSION FUND MANAGEMENT fc REAL ESTATE INVESTMENT Asset Liability Modeling and the Pension Decision-Making Process The Plan Sponsor's Investment Decision Asset Allocation and Cost Implications Implications for Plan Beneficiaries Beneficiaries' Investment Decisions Conclusions 129 Bibliography 132 Curriculum Vitae 145 Ehrenwortliche Erklarung 149