ICPM Discussion Forum: Fall 2017 Forum

Size: px

Start display at page:

Download "ICPM Discussion Forum: Fall 2017 Forum"

Abigayle Kelly
5 years ago
Views:

1 ICPM Discussion Forum: Fall 2017 Forum October 2017 Dates: October h 2017 Location: Hotel Sofitel Legend the Grand Amsterdam, Oudezijds Voorburgwal 197, 1012 EX Amsterdam, Netherlands - Council Chamber, first floor. Moderator: Rob Bauer Sunday, October 15, 2017 Theater Carré, In de Nok 18: Welcome and Opening Remarks Rob Bauer (Executive Director, ICPM) Keynote Address: Ethical Asset Valuation and the Good Society Christian Gollier is professor of the Toulouse School of Economics and a visiting professor at Columbia University s economics department. He is the author of The Economics of Risk and Time (2004) and Pricing the Planet s Future: The Economics of Discounting in an Uncertain World (2012), and a lead author of the 4 th and 5 th reports of the IPCC. Christian Gollier s most recent book, Ethical Asset Valuation and the Good Society, starts by stating transparent moral principles, and from these derives simple rules that can be used to evaluate saving and investment decisions in terms of the public good. Rather than trying to explain observed asset prices, he derives what these prices ought to be in order to direct capital towards socially desirable investments. He focuses especially on the two prices that drive most financial decisions the price of time as reflected in the interest rate, and the price of risk and explores the role these plan in our long-term planning. If investment projects in renewable energy could be financed at a lower interest rate than those linked to fossil fuels, for instance, the energy transition would be easier to accomplish. Building on criticism of the short-termism of financial markets, Gollier suggests ways to shift investment towards the future through discounting of the valuation of assets and investments with long-term benefits. In this sophisticated but accessible work, Gollier builds a bridge between welfare economics and finance theory to provide a framework for ethical valuation capable of establishing what asset prices should be on the basis of our shared moral values onward Networking Dinner 1

2 Monday, October 16, :30-8:15 Registration Desk Open Continental breakfast available 8:15-8:30 Opening Remarks and Introduction of the Day Barbara Zvan (Chair ICPM) Theo Nijman (Netspar) Rob Bauer (Executive Director ICPM) Topic: Optimal Pension Design for Individuals 8:30-10:15 Optimal Pension Design for Individuals Speakers: Magnus Dahlquist, Professor of Finance, Stockholm School of Economics, Ralph Koijen, Professor of Finance, New York Stern School of Business, and Stefan Lundbergh, Director Cardano and leader task force Swedish Pension Review. Session Objective: The objectives of this session are to get the latest academic insights on optimal pension design for individuals and to give feedback from a practitioner perspective. Dahlquist characterizes the optimal default fund in a defined contribution (DC) pension plan. Using detailed data on individuals' holdings inside and outside the pension system, they find substantial heterogeneity within and between passive and active investors in terms of labor income, financial wealth, and stock market participation. They build a life-cycle consumption-savings model, with a DC pension account and an opt-out/default choice, that produces realistic investor heterogeneity. Relative to a common age-based allocation, implementing the optimal default asset allocation implies a welfare gain of 1.5% during retirement. Much of the gain is attainable with a simple rule of thumb. Koijen investigates the fragility of market risk insurance. In response to the shift from defined-benefit to definedcontribution pension schemes, U.S. life insurers expanded their offering of retail financial products, so-called variable annuities that package mutual funds with minimum return guarantees over long horizons. Variable annuities accounted for $1.5 trillion or 42 percent of life insurer liabilities in 2007, illustrating the consumer demand for guaranteed investment returns. Using a new data set covering the universe of variable annuity products, Koijen shows that sales fell and fees spiked after the 2008 financial crisis as the increased value of existing liabilities stressed risk-based capital. Life insurers also made guarantees less generous or stopped offering guarantees entirely to limit future risk exposure, leading to market incompleteness. We discuss the broader implications for the benefits of guaranteed returns to households and the potential stability concerns for the pension and insurance sector as a result of this change in insuring aggregate instead of idiosyncratic risks. In most countries the pension design is heavily influenced by the political, fiscal and legal context. Lundbergh comments that possible changes to a pension system is mainly driven by the path leading up to the current system, culture and political possibilities. Improving pension design is the art of what is possible, rather than what is theoretically optimal. Lundbergh will provide some insights based on his near 20 years of experience working in the pension sector. Session Format: Three presentations of 25 minutes followed by a RP discussant (10 minutes) and a plenary Q&A. 10:15-10:45 Networking Break 2

3 10:45-12:00 Optimal DC Design: A Cross-country (Australia and The Netherlands) Study of Saving and Spending in Retirement Speakers: Hazel Bateman, Professor of Risk & Actuarial Sciences, University of Queensland, ICPM Research Partner presentation or discussion (TBD) Session Objective: Using an online experimental survey, Bateman and coresearchers investigate the importance of rational, behavioural and psychological motives for saving in retirement. The experimental task is designed to elicit the impact of alternative policy settings comprising combinations of regular income and wealth and of major life events such as becoming frail and/or losing a spouse. The survey targets representative samples in the Netherlands and Australia - two countries with quite different retirement income policy design - to enable us to investigate the importance of the prevailing institutional settings (annuitized pension wealth in the Netherlands versus flexible drawdowns in Australia). Preliminary findings suggest that institutional settings are generally not associated with the importance of a particular saving motive except in the case of a major life event. We also find that, after controlling for a rich set of explanatory variables, individual and country specific effects remain important in explaining why individuals want to hold on to (or even increase) their wealth during retirement. Session Format: Presentation (30 minutes by Hazel) followed by an IPCM Research Partner discussant (10 minutes) and a plenary Q&A. 12:00-13:30 Move to DNB and Short Networking Lunch Shuttles will be arranged, instructions will be given at a later date. Topic: Hedging Interest Rate Risk of Long-dated Liabilities 13:30-15:00 Hedging the Balance Sheet of Pension Funds Speakers: Jan Ritter, Head of Hedging, ATP and Peter Schotman, Professor of Finance, Maastricht University School of Business and Economics. Session Objective: Ritter will share his insights on running what maybe the largest net swap portfolio in the world. ATP has fully hedged interest rate risk on the liabilities since He will share information on how ATP has changed the liability discounting curve several times to adapt to changes in capital markets and to ensure sustained hedging of liabilities. Schotman will discuss hedging interest rate risk of very longdated liabilities. At maturities beyond 20 years, insufficient liquid financial instruments are available to fully protect against interest rate risk. Using shorter maturity instruments then introduces model risk. Since regulation has its own way of defining the long end of the yield curve, hedging regulatory risk becomes different from replicating the financial liabilities. Finally, given these and other considerations, the question comes up whether full hedging is desirable. Session Format: Two presentations of 25 minutes followed by plenary Q&A. 15:00-15:30 Networking Break 3

4 Topic: The Transition of the Dutch Pension System 15:30-16:00 The Decumulation of Pensions: Design Challenges Speaker: Theo Nijman, Scientific Director, Netspar and Professor of Econometrics, Tilburg University. Session Objective: Nijman will set-up the discussion on the Dutch pension system by sharing his view on the design challenges associated with the decumulation of pension capital. There will be a link with pension design, level of risk-taking, and how to hedge interest rates. Session Format: Presentation of 20 minutes followed by a short Q&A. This session is the build-up to the panel session. 16:00-17:30 Panel: Challenges in the Transition of the Dutch Pension System Speakers: Corien Wortmann-Kool, Chairman ABP, Frank Elderson, DNB Director, and feedback by ICPM Research Partner Working Group represented by Michael Preisel, Head of Quantitative Research, ATP. Session Objective: This panel will discuss the debate in the Netherlands on a potential major pension reform. Representatives from the Dutch pension fund community, the Dutch pension regulator (DNB), and the ICPM research partner community (the non- Dutch contingency) will give their perspectives of the recent discussion in The Netherlands (even a national dialogue) on how to transition to a sustainable and fair pension system. Session Format: Three presentations of minutes followed by a panel discussion (Theo Nijman will also join) and a plenary Q&A in which we especially invite the international community in the audience to give feedback to the Dutch. 17:30-17:45 Further Thoughts and Suggestions for Future Action 17:45 Cocktails/Stand-Up Dinner Reception Location: Restaurant Café de Waag 4

5 Tuesday, October 17, :45-8:30 Registration Desk Open Continental breakfast available 8:30-9:00 Introduction of the Day and Update Research Committee Rob Bauer (Executive Director, ICPM) Update ICPM Research Committee and ICPM Working Group Climate Change 9:00-9:45 Keynote Address: ECB s Monetary Policy and How It Affects European Pension Funds Speakers: Klaas Knot, President DNB and Member of the Governing Council of the ECB. Session Objective: Knot will discuss the European Central Bank s monetary policy, the economic cycle and structural economic developments in relation to market interest rates. Furthermore, he will address the impact on pension funds. Session Format: Speech of 20 minutes followed by 25 minutes of plenary Q&A. Topic: Long Horizon Investments 9:45-11:15 Smart Beta Investing Speakers: Felix Goltz, Head of Applied Research, EDHEC Risk Institute and Director of Research Scientific Beta, and Rob van den Goorbergh, Head of Investment Research, APG. Session Objective: Smart Beta strategies, as one of the strongest growth areas in investment management recently, have established a space in between traditional (capweighted) passive investments and traditional (proprietary and discretionary) active management. Perhaps unsurprisingly, Smart Beta has drawn fierce criticism from both advocates of traditional active management and of traditional passive management. misconceptions. Goltz will share his opinion on this phenomenon. Van den Goorbergh will provide a balanced view on the added value of this investment strategy for longhorizon investors. Session Format: Two presentations of 25 minutes followed by a plenary Q&A in which we invite participants to give their views on the added value of smart beta investment strategies. 11:15-11:45 Networking Break 5

6 11:45-12:45 ICPM Awarded Research: Connections and Conflicts of Interest: Investment Consultants Recommendations Speaker: Shikha Jaiswal, PhD Student, Goizueta Business School, Emory University Session Objective: Plan sponsors rely on investment consultants' recommendations for hiring money managers to manage their plan funds. Often these investment consultants have their own investment management firms, or have business connections with investment managers, creating a conflict of interest. I find strong evidence that consultants bias hiring decisions towards their connected managers: a direct connection to a consultant increases a manager's odds of being hired by 637%, while an indirect connection increases the odds by 301%. The hiring decisions are less sensitive to past performance and management fee when connected managers are hired. I further find that, post hiring, the funds managed by the connected managers underperform significantly relative to the funds managed by the unconnected managers. Session Format: Presentation of 25 minutes followed by plenary Q&A :30 Networking Lunch :00 Innovations in the Pension Sector Speakers: Hugh O Reilly, CEO, OPTrust, Rene Upperman, CEO, Bpf Detailhandel and Tim Mitchell, Senior Investment Consultant, Willis Towers Watson Session Objective: This session will be focused on the level of innovation in the pension sector, how to stimulate innovation, determine which areas need innovation, how to organize this innovation and potentially provide best practice examples of innovation. O Reilly will discuss OPTrust s recent innovative ventures. Upperman will share Detailhandel s innovative projects to raise awareness with pension fund participants by sharing the results of a research project jointly conducted with Maastricht University. Mitchell will discuss Willis Towers Watson s latest thinking on innovation in the asset owner community drawing on examples identified in their recent study of 15 of the world s largest asset owners. Session Format: Three presentations of 20 minutes followed by a plenary Q&A Networking Break :15 Share Your Research! Speakers: Greg Mennis, Director PEW Charitable Trust, Dirk Broeders, Senior Strategy Advisor, DNB and Hein Stam, Chief Strategist, MN. Session Objective: In this seminal Share Your Research session, ICPM Research partners will share their recent research activities with the ICPM community. Mennis will present a recent PEW report on the use of complex investments by US public pension plans. Broeders will discuss a new DNB working paper on pension funds illiquid assets allocations under liquidity and capital constraints. Stam will go into the importance of having a clear governance and investment framework with regard to investment decisions. Session Format: Three presentations of 25 minutes followed by a plenary Q&A. 17:15-17:30 Further Thoughts and Suggestions for Future Action 6

7 17:30 Cocktails/Stand-Up Dinner Reception Location: TBD Map: 7

UNSW Business School and ARC Centre of Excellence in Population Ageing Research (CEPAR) (Australia) Professor of Economics and Deputy Director

ICPM - NETSPAR Discussion Forum: Fall 2017 Speaker Directory Hazel Bateman UNSW Business School and ARC Centre of Excellence in Population Ageing Research (CEPAR) (Australia) Professor of Economics and