Mass Customisation versus Mass Production in Investment Management

Lionel Martellini: Over the last 15 years or so, the investment industry has experienced a series of profound structural changes, and an increasing number of serious new challenges are being faced by both institutional and individual investors as a result of these changes.

Author(s):

Lionel Martellini

Professor of Finance at EDHEC Business School and Director of EDHEC-Risk Institute.

On the institutional side, pension funds have been particularly impacted by the shift in most accounting standards towards the valuation of pension liabilities at market rates, instead of fixed discount rates, which has resulted in increased volatility for pension liability portfolios (see Fabozzi et al., 2014, for a discussion on pension liability discounting rules).1 This new constraint has been reinforced in parallel by stricter solvency requirements that followed the 2000-2003 pension fund crisis, while ever stricter solvency requirements are also increasingly being imposed on insurance companies in the US, Europe and Asia. These evolutions in accounting and prudential regulations have subsequently led a large number of corporations to close their defined-benefit pension schemes so as to reduce the impact of pension liability risk on their balance sheet and income statement. Overall, a massive shift from defined-benefit to defined- contribution pension schemes is taking place across the world.2 Consequently, individuals are becoming increasingly responsible for making investment decisions related to their retirement financing needs, investment decisions that they are not equipped to deal with given the low levels of financial literacy within the general population and the reported inability of financial education to significantly improve upon the current situation (Fernandes et al., 2014).3 In such a fast-changing environment and an increasingly challenging context, the need for the investment industry to evolve beyond standard product-based market-centred approaches and to start providing both institutions and individuals with meaningful investor-centric investment solutions has become more obvious than ever.

Type: EDHEC Publication
Date: le 08/02/2016
Research Cluster : Finance

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