Active Portfolio Management of the Finnish Pension Companies
Jalava, Aleksi (2017)
Jalava, Aleksi
2017
Kuvaus
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Tiivistelmä
This thesis examines active portfolio management of the large Finnish pension companies. The aim is to provide evidence that the pension companies’ varying investment strategies and active bets cancel each other, producing a combined portfolio that behaves closely to an index portfolio. Ambachtsheer (2013) suggests that the pension system could improve its investment returns and reduce costs by increasing collaboration or even combining the pension assets under one management.
The focus is on the pension companies’ domestic listed stock investments. The thesis uses active share and tracking error (Cremers & Petäjistö 2009) to assess the companies’ investment activity relative to various benchmark indexes. These methodologies account for two dimensions of active management: active share assesses stock selection activity and tracking error relative risk to a benchmark index. The sample period is 2008 – 2016.
The results show that active share and tracking error values are persistent, but vary over the pension companies. A portfolio that combines all the pension companies’ investments has both low and persistent active share and tracking error. This implies that the pension assets are well diversified, which is one the goals of pension investing.
It is not surprising that the combined portfolio behaves closely to a broad market index, since the regulation requires the pension companies to diversify. Additionally, the companies’ active bets eliminate each other and the small size of the Finnish stock market provides only a limited stock universe. All considered, further research could continue exploring the efficiency of the current pension asset management.
The focus is on the pension companies’ domestic listed stock investments. The thesis uses active share and tracking error (Cremers & Petäjistö 2009) to assess the companies’ investment activity relative to various benchmark indexes. These methodologies account for two dimensions of active management: active share assesses stock selection activity and tracking error relative risk to a benchmark index. The sample period is 2008 – 2016.
The results show that active share and tracking error values are persistent, but vary over the pension companies. A portfolio that combines all the pension companies’ investments has both low and persistent active share and tracking error. This implies that the pension assets are well diversified, which is one the goals of pension investing.
It is not surprising that the combined portfolio behaves closely to a broad market index, since the regulation requires the pension companies to diversify. Additionally, the companies’ active bets eliminate each other and the small size of the Finnish stock market provides only a limited stock universe. All considered, further research could continue exploring the efficiency of the current pension asset management.