4 kees koedijk investment beliefs that matter

8/19/2019 4 Kees Koedijk Investment Beliefs That Matter

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Rotman ICPM / Netspar / Maastricht University

Discussion Forum – October 200

Investment !e"ie#s

$ees $oe%i&'( University o# )i"bur* +"#re% ,"a*er( P--M Investments / R,M .rasmus University


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Page 2 Investment Beliefs

hat ma'es an investor *reat

1 Investment mana*ement – Investment mana*ers nee% an investment process in sync ith theory

3Damo%aran 200 4 – Up ar% potentia" #or *oo% *overne% pension #un%s 3+mbachtsheer

200 4( best *overne% pension #un%s #ocus on coherence( process an%

peop"e 3Ro*er an% Ur in 200 4

1 ,trate*ic mana*ement5 – I%enti#yin* core competences( a"i*nin* or*ani6ation

1 Common threa%5 #ocuse% investment be"ie#s


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Page 3Investment Beliefs

Focus on investment be"ie#s

1 hy not – Companies have to articu"ate their uni7ue se""in* proposition #or

their c"ient3s4 – .specia""y in #inancia" mar'ets here %i##erent visions co8e9ist

1 I# not – It becomes %i##icu"t #or trustees to eva"uate ne %eve"opments(

an% hether to embe% them in their o n strate*ies – More "i'e"y to :&oin the her%;( increasin* costs an% opportunity

costs a"on* the ay


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Research set up

1 Our paper investi*ates – hat investment be"ie#s are out there – ?o %o investment be"ie#s o# pension #un%s an% asset mana*ers

%i##er – Can e say somethin* about their "in' to per#ormance

1 Data co""ection – eb site( 3annua"4 report( presentations co""ections – Focus on "ar*est asset mana*ers an% pension #un%s

– ,cope5 pub"ic"y reporte% be"ie#s 3the e9p"icit ones4


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)heory behin% investment be"ie#

1Observes behavior in the#inancia" mar'etp"ace@

1Frames hy the or*ani6ation%ea"s ith this in asophisticate% ay>

1)heoretica" basis behin% theinvestment be"ie#>

1 hat is it about that mechanism1Is it a structura"( repeatab"ephenomenon

1Describes ho the investmentbe"ie# can be e9p"oite%>

1Or*ani6ation to success#u""y e9p"oit theinvestment strate*y>

1Ain's the e9p"oitation o# the investmentbe"ie#s to per#ormance measures>

.B+MPA.

Overreaction Mispricin* ith in#ormation%issemmination

,e"" ith ne*ative( buy ithpositive earnin*s

announcement

)ra%in* strate*y ith short term hori6on>-oo% versus ba% ne s announcements

have to be i%enti#ie%>

Investment Belief Theory Investment Strategy Organization


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Ne ea"an% ,uperannuation Fun%

:e9p"oit the premium avai"ab"e to investorsho %o not re7uire "i7ui%ity> Our "on*

investment hori6on( combine% ith E noout#"o s( means e are e9treme"y e""positione% to capture this premium>;


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From be"ie#s to phi"osophy

Investment phi"osophyInvestment Belief Theory Investment Strategy Organi zation

Investment Belief Theory Investment Strategy Organi zation

Investment Belief Theory Investment Strategy Organi zation

… =

Coherent set o# be"ie#s


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,amp"e5 2G pension #un%s an% H asset mana*ers

North +merica

Pension#% +ssetmn*

HH

.urope

Pension#% +ssetmn*

H0

Ne ea"an%( +ustra"ia

Pension#% +ssetmn*

G 0


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J *roups o# investment be"ie#s

Financial Markets beliefsFinancial Markets beliefs

1Ris' premium

1Ris' %iversi#ication

13In4e##iciencies in #inancia" mar'ets(

+sset pricin*

1?ori6on

1Ris' premium

1Ris' %iversi#ication

13In4e##iciencies in #inancia" mar'ets(

+sset pricin*

1?ori6on

Investment process beliefsInvestment process beliefs

1Impact( #ocus on mana*ement

%ecisions

1Ris' mana*ement

1Investment mana*ement sty"e

1Costs

1Impact( #ocus on mana*ement

%ecisions

1Ris' mana*ement

1Investment mana*ement sty"e

1Costs

Sustainability an !overnanceSustainability an !overnance

1,ustainabi"ity an% Corporate

-overnance in asset pricin*1Ro"e in investment process

1,ustainabi"ity an% Corporate

-overnance in asset pricin*1Ro"e in investment process

Organizational beliefsOrganizational beliefs

1)eams( ro"e o# investment mana*ers

1Out vs> insourcin*1.9perience

1)eams( ro"e o# investment mana*ers

1Out vs> insourcin*1.9perience


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P--M

capita"i6e on our stren*th as a "on*8terminvestor> E e can se"ect investments

hich *enerate a hi*h return in the "on*term( even thou*h they may su##er shortterm "osses>;


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PensionDanmar'

+ccor%in* to PensionDanmar'( :the bestinvestment resu"ts are most "i'e"y to be

achieve% ith a re"ative"y sma"" an% #ocuse%investment team combine% ith a hi*h%e*ree o# outsourcin* to e9terna"mana*ers>;


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O)PP

:mana*in* investment ris' is &ust asimportant as *eneratin* returns> Maintainin*a e""8%iversi#ie% port#o"io is the cornerstoneo# the Fun%=s ris' mana*ement pro*ram>;


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+!N +mro

.9pects over the "on*er term to see ;thema&ority o# va"ue a%%e% come #rom stoc'se"ection as this norma""y represents a morestab"e an% consistent source o# out8per#ormance>;


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,ome be"ie#s are more e7ua"E


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Di##erences in pension #un%s an% asset mana*ers

Pension #un% +sset mana*er Ris' %iversi#ication

Ris' premiums

Responsib"eInvestments

-oa"s

Ine##iciencies

+ctivemana*ement

)eams an% sta##

Focus

Impact

Ris' man>


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Re"ationships bet een be"ie#s

1 ea' re"ationships e9pecte% an% #oun%5 su**ests sensib"e thou*ht8out processes

1 ,ome re"ationships sho up( su**estin*

H> Or*ani6ations hich ho"% be"ie#s about here their a%%e% va"ue is( ten% to app"y itin the investment process>

2> )he impact o# "o er costs becomes more visib"e ith a "on*er time hori6on>

G> !e"ie#s about ris' %iversi#ication an% ine##iciencies are in some cases passe% onto the e9terna" mana*ers that pension #un%s se"ect>

J> On the other han%( pension #un%s ith be"ie#s about in8 an% outsourcin* are more#ocuse% on the or*ani6ations *oa"s an% pension "iabi"ities>

K> ,ome or*ani6ations consi%er ris' premia in a broa%er settin*


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For*in* a "in'

Investment Belief Theory Investment Strategy Organization

Ris' %iversi#ication Return8ris' ratio

+sset %iversi#ication

?ori6on G( K( L years perio%s

Investment Mana*ement ,ty"e +"pha

In#ormation ratio

Costs .9pense ratio

"erformancemeasures

"erformancemeasures


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DescriptivesE

Pension #un%s create a"pha +re e"" %iversi#ie%


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E

Pension #un%s create hi*h return/ris' an% report "o er costs


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Ain's e9ist

1 !et een severa" investment be"ie#s an% structura"per#ormance measures>

– Or*ani6ation ith investment be"ie#s on ris' %iversi#ication a"so shobetter return8ris' per#ormance measures( but a"so "o er costs>

Focus pays o##>

– Fun%s that ho"% a c"ear vie on ho ris' mana*ement is or*ani6e%(usua""y in combination ith a vie on the mana*ement sty"e( rea"i6ehi*her a"pha an% return/ris' ratio s than #un%s that %o not ho"% such

vie s>


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,ome caveats

1 ,ma"" samp"e( yet the broa%est so #ar

1 Per#ormance measures are re"ative"y cru%e( mana*ersmi*ht have other per#ormance measures in min%

1 e ve co""ecte% the e9p"icit reporte% ones( hat aboutthe non8reporte% imp"icit ones .very pension #un%ho"%s them per %e#inition>


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,ummari6in*

Investment beliefs# still relatively une$plore %

– Deve"opin* a set o# investment be"ie#s ma'es sense #rom a strate*ic perspective5an or*ani6ation has to i%enti#y here an% ho it %oes a%% va"ue to the investmentprocess>

Structure emerges

– !e"ie#s about the #inancia" mar'ets( investment process( or*ani6ation( an%sustainabi"ity an% corporate *overnance>


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"ension fun s an asset managers iffer – + pension #un% #ocuses on ris' %iversi#ication( *ettin* its beta ri*ht> – +n asset mana*er stresses the ro"e o# ris' mana*ement an% ar*ues #or a particu"ar

investment sty"e> +sset mana*ers emphasi6e the 7ua"ity o# their or*ani6ation>

"romising link bet&een beliefs an performance

– +n or*ani6ation ith investment be"ie#s on ris' %iversi#ication sho s better return8ris'per#ormance( but a"so "o er costs>

– Fun%s that ho"% a c"ear vie on ho ris' mana*ement is or*ani6e%( usua""y incombination ith a vie on the mana*ement sty"e( rea"i6e hi*her a"pha an%return/ris' ratio s than #un%s that %o not ho"% such vie s>

– Investment be"ie#s #rame or' he"ps #ocus investment strate*y( *overnance an%

resu"ts

4 kees koedijk investment beliefs that matter

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