RT Journal Article SR Electronic T1 Constraints and Innovations for Pension Investment:
The Cases of Risk Parity and Risk Premia Investing JF The Journal of Portfolio Management FD Institutional Investor Journals SP 12 OP 20 DO 10.3905/jpm.2014.40.3.012 VO 40 IS 3 A1 Wai Lee YR 2014 UL https://pm-research.com/content/40/3/12.abstract AB In the current low real-yield environment, institutional investors are challenged as they try to achieve their often-fixed targeted returns within the confines of their investment policy guidelines. If much-discussed solutions, such as risk parity and risk premia investing, are the new answers, they must improve portfolio efficiency and flexibility in taking risks. This article explores the ways these proposed solutions may be successful. The author argues that the solutions neither introduce new assets that offer non-replicable, non-redundant return and risk characteristics, nor do they offer new asset-pricing theories that improve forecasts of asset returns or risks. Instead, their value proposition is more in the category of improved portfolio construction. They primarily benefit practitioners by providing more-efficient risk allocations, which they do by relaxing constraints to which pension investors are often subject, including restrictions on using leverage and short selling.TOPICS: Pension funds, analysis of individual factors/risk premia, volatility measures