Written on 08 March 2022.
We aim to provide European institutional investors with an academic research perspective on the most relevant issues in the industry today.
We first look at a problem that arises in the decumulation phase of retirement, namely that relatively little is known about the interaction between withdrawal and investment strategies. In research supported by Bank of America, our specific goal is to identify whether some withdrawal strategies are more suitable than others as a function of the level of risk-taking in the investment portfolio. Overall, we found that state-dependent withdrawal strategies that take into account ‘bad states of the world’ such as poor market performance (low liquid wealth) or high expected time to live display better results than the fixed withdrawal strategy.
Next, when asset managers are criticised for greenwashing, the answer is often that greenwashing is only an issue for passive investments, while active strategies – particularly active ownership – can fix all these problems. We study to what extent institutional investors’ ownership affected corporate carbon emissions in 68 countries for the period from 2007 to 2018 and find that institutional investment on average does not appear to lead to any tangible carbon footprint reduction.
Our third article explores the optimal design of personalised performance portfolios for liability-driven investors in research that was supported by FirstRand. Our analysis suggests that investors would benefit from the availability of ‘precision investing portfolios’ tailored to their specific circumstances, as opposed to being left with portfolios that focus on standalone performance. It helps shift the emphasis away from investment products towards genuine investment solutions.
In research drawn from the Amundi ETF, Indexing and Smart Beta Investment Strategies research chair at EDHEC-Risk Institute, we present the results of the EDHEC European ETF, Smart Beta and Factor Investing Survey 2021, which feature a slowdown in the use of smart beta and factor investing strategies, and a growing interest in the integration of an SRI/ESG component into investment. The 2021 survey shows significant interest in SRI/ESG among respondents, who overwhelmingly answered all questions related to it. Many of them already include this component in their investment, and a large part of those who do not plan to do so in the near future. While their main motivation to incorporate ESG criteria into their investment is to facilitate a positive impact on society, the majority of them do not want this to be done at the expense of performance.
In an article on replicating real estate indices prepared as part of the Swiss Life Asset Managers France research chair on Real Estate in Modern Investment Solutions at EDHEC-Risk Institute, we find that it is possible to track the EDHEC IEIF Commercial Property (France) index with a satisfactory degree of accuracy over long-term horizons by constructing a buy-and-hold and cap-weighted portfolio of 10 to 15 SCPIs, thereby mitigating the liquidity constraints of the French non-listed real estate fund market. Our proposed replication method does not require any modelling or any data-intensive calculation and is therefore expected to be robust.
Finally, we ask whether ESG investing improves risk-adjusted performance. We argue that ESG strategies should be valued for the unique benefits that they can provide, such as making a positive impact on the environment or society, as opposed to being promoted on the basis of disputable claims regarding their outperformance potential.
The latest issue of the EDHEC Research Insights supplement to IPE proposes the following articles: