KCFR Funded Research 2024

Benchmarking Benchmarks in the Pension Fund Industry

(Richard Evans, University of Virginia, Juan-Pedro Gomez, IE University, Linlin Ma, Peking Univeristy, Yuehua Tang, University of Florida)

Benchmarks enable the assessment of pension fund performance by retirees, regulators, elected officials and other stakeholders. These benchmarks are an important ingredient in determining the compensation of pension fund chief investment officers (CIOs), staff, and external fund managers, and therefore, of their associated managerial incentives. This work examines the benchmarks used by pensions.

Rethinking Private Markets as an Asset Class

(Gregory Brown, Christian Lundblad, UNC Chapel Hill)

Understanding the risk adjusted returns of funds across asset classes relies on how different investments, including private funds, are defined in terms of the asset class. In light of this, the authors examine different approaches to estimating fund risk adjusted returns to examine the costs and benefits of the approaches. The results of such an analysis would be useful to a wide range of stakeholders including investors, regulators, research academics, and teaching faculty.

Designing ESG Benchmarks

(Anil Kashyap, University of Chicago, Natalia Kovrijnykh, Arizona State University, and Anna Pavlova, London Business School)

Benchmarking is a prevalent feature in asset management. In particular, most fund managers are evaluated relative to benchmarks. The authors study an optimal design of benchmarks with an application to ESG benchmarks. They consider different motivations for ESG investing (either as returns maximization because these industries are expected to do well in the future or alternatively via a judgement of the harm the firm might be doing). These motivations impact optimal benchmarking, manager incentives, and firm behavior. Optimal design of ESG benchmarks are impacted by all of this.