OP-EDs

However, for many private sector employees the quality of the pension plan available to them leaves much to be desired. The typical private sector pension is a defined contribution plan, which means employees bear the risk of their investments and face the possibility of outliving their savings. Annual operating costs can reach between 1.5 per cent and 2 per cent of total pension assets for plans offered by small employers.

The total portfolio approach is gaining interest as a new investing strategy for pension funds and other asset owners, but its novel status may be deceiving. What is new and interesting is that, since the mid 2000s, some institutional investors in countries such as Australia, Canada, New Zealand, Scandinavia and Singapore have redesigned their entire investment framework to maximize the benefits of a total portfolio approach.

The exacting demands of sustainable investing will lead to disappointing outcomes and may ultimately result in an ESG backlash. It’s important for institutional investors to maintain and secure the goals of sustainable investment by taking a step back to rethink what it means to invest sustainably and what to expect in terms of risk, return and impact.

Retiring baby boomers are in an era of decumulation anxiety, as they convert their pension assets into income that they fear won’t hold up over the entirety of their retirement. The decumulation problem is complex for defined contribution pension plan sponsors because it involves transferring lump sum pension assets to retirees who may lack investment expertise and who may not know how to distribute their savings to cover their entire retirement horizon. It’s not obvious how to calibrate between having the desired standard of living while controlling expenditure to avoid outliving savings and, if possible, leaving an inheritance.

Pension funds spend billions on active investments that aim to generate “alpha” – the extra value above and beyond risk-adjusted returns. The problem is that in the long and complex chain of industry players connecting the real economy to the financial sector, pension funds are at the bottom of the value-creation chain.In my recent study, done jointly with Barbara Zvan and Eduard van Gelderen, we show how four large Canadian pension funds have taken control of the value-creation process in order to capture a greater proportion of the upstream value.

The total portfolio approach is gaining interest as a new investing strategy for pension funds and other asset owners, but its novel status may be deceiving. Indeed, the concept behind this approach has been at the core foundation of modern portfolio theory since the days when Nobel Prize winner Harry Markowitz showed that maximizing the risk-adjusted return of the total portfolio could lead to high average returns and low volatility. What is new and interesting is that, since the mid 2000s, some institutional investors in countries such as Australia, Canada, New Zealand, Scandinavia and Singapore have redesigned their entire investment framework to maximize the benefits of a total portfolio approach.

Driven by the net-zero pledge towards green investments, institutional investors are finding themselves uncomfortably wedged between a rock and a hard place.

Are our pension funds investing too little at home? Yes, according to a large group of business leaders in an open letter to the Canadian government. Finance academics who have long studied this question would disagree.

Retiring baby boomers are in an era of decumulation anxiety, as they convert their pension assets into income that they fear won’t hold up over the entirety of their retirement.

Pension funds spend billions on active investments that aim to generate “alpha” – the extra value above and beyond risk-adjusted returns. The problem is that in the long and complex chain of industry players connecting the real economy to the financial sector, pension funds are at the bottom of the value-creation chain.

The most difficult task for pension fund managers is to properly calibrate risk and return to make sure that pensioners earn a steady income after retirement.

The combination of ultra-low interest rates and high longevity is putting a major strain on retirement systems across the globe. A recent report by the World Economic Forum predicts that the global gap between retirement savings and retirement needs will reach $400trn by 2050.