Alternative investments for institutional investors: risk budgeting techniques

This paper, produced by EDHEC Risk and Asset Management Research, presents an empirical analysis of the benefits of alternative forms of investment strategies from an asset-liability management perspective.

Using a vector error correction model that explicitly distinguishes between short-term and long-term dynamics in the joint distribution of asset returns and inflation, we identify the presence of long-term
cointegration relationships between the return on typical pension fund liabilities and the return of various traditional and alternative asset classes.

The results suggest that real estate and commodities have particularly attractive inflation-hedging properties over
long-horizons, which justify their introduction in pension funds’ liability-matching portfolios.

Overall, the results suggest that alternatives are very useful ingredients for institutional investors facing inflation-related liability constraints.

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GIC, Temasek eye trillions of growth in climate adaptation market

GIC, Temasek eye trillions of growth in climate adaptation market

Singapore’s two largest asset owners, GIC and Temasek, see attractive opportunities in climate adaptation solutions – a relatively underfunded area compared to decarbonisation. The former has already made selective adaptation investments and said the opportunity set across public and private debt and equity could increase to $9 trillion by 2050.

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Macroeconomic risk and hedge fund returns

This paper estimates hedge fund and mutual fund exposure to newly proposed measures of macroeconomic risk that are interpreted as measures of economic uncertainty. The academics, from Georgetown and Stern, find the resulting uncertainty betas explain a significant proportion of the cross-sectional dispersion in hedge fund returns. However, the same is not true for mutual

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Academics from the London Business School, Boston College and Temple University, examine the outperformance of US public companies following corporate social responsibility engagement.

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Using detailed data from IPD, this paper looks at the holdings and performance of 256 UK commercial real estate funds from 2002-2011. It concludes the more active funds, those further from benchmark holdings, outperform but are not accompanied by higher risk.   To access the paper click here How active is your real estate fund

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