New Developments in Long-Term Asset Management

Supported by Norges Bank Investment Management
Monika Piazzesi and Luis Viceira, Organizers
Fourth Annual Conference
Cambridge, MA

May 9-10, 2019

Conference Papers

Common Ownership in America: 1980-2017, Matthew Backus, Christopher Conlon, and Michael Sinkinson

Valuing Private Equity Investments Strip by Strip, Arpit Gupta, and Stijn Van Nieuwerburgh

Which Investors Matter for Global Equity Valuations and Expected Returns? Ralph S. J. Koijen, Robert J. Richmond, and Motohiro Yogo

The Impact of Pensions and Insurance on Global Yield Curves, Robin Greenwood, and Annette Vissing-Jorgensen

What's Wrong with Pittsburgh? Delegated Investors and Liquidity Concentration, Andra C. Ghent

Conditional Dynamics and the Multi-Horizon Risk-Return Trade-off, Mikhail Chernov, Lars A. Lochstoer, and Stig Lundeby

Fund Tradeoffs, Lubos Pastor, Robert F. Stambaugh, and Lucian A. Taylor

The Subsidy to Infrastructure as an Asset Class, Aleksandar Andonov, Roman Kräussl, and Joshua Rauh

The Benchmark Inclusion Subsidy, Anil K. Kashyap, Natalia Kovrijnykh, Jian Li, and Anna Pavlova

< 2018 Conference Papers>
< 2017 Conference Papers>
< 2016 Conference Papers>

     A growing body of empirical research in financial economics is concerned with the relationship between an investor’s attributes and that investor’s demand for various portfolio assets. An important group of investors, including public and private defined benefit pension plans, sovereign wealth funds, and endowments associated with foundations, colleges, and universities, is distinguished by very long investment horizons. Some, such as pension plans, are liability-driven investors with long-duration liabilities. Others, such as university endowments, are associated with very long-lived institutions that face the challenge of allocating resources over multiple generations of potential beneficiaries.

What are the capital market consequences of the presence of investors with very long investment horizons? Does standard investment theory capture the key tradeoffs facing these investors? The theory of intertemporal portfolio choice suggests that hedging against future deterioration in the investment opportunity set is more important for long- than for short-horizon investors. The extent to which such hedging translates into differences in asset allocation and portfolio holdings is an empirical question. An investor’s horizon also matters for the measurement of risk for a given asset category, and also potentially affects the investor’s willingness to sacrifice returns for an asset’s liquidity.

To spur research on both the theory and practice of long-term investing, in 2016, with the generous support of the Norwegian Finance Initiative, the NBER launched a Project on Long-Term Asset Management. The fourth annual research meeting of this project was held in Cambridge, MA, on May 9-10, 2019. The researchers presented papers on topics ranging from the changing ownership structure of equity markets, to the returns on real assets such as infrastructure investments, to the valuation of private equity investments. A keynote address was delivered by Harvard University Professor John Campbell, who discussed how introducing non-stationarity in the distribution of investment returns alters standard results on intertemporal portfolio choice as well as the selection of payout policies for long-horizon investors.