The BNP Paribas Investment Partners "Asset-Liability Management and Institutional Investment Management" Research Chair
The BNP Paribas Investment Partners "Asset-Liability Management and Institutional Investment Management" Research Chair will be piloted by a joint BNP Paribas Investment Partners/EDHEC-Risk Institute committee and will give rise to a major three-year research programme.
The chair, under the responsibility of Lionel Martellini, the Scientific Director of EDHEC-Risk Institute, will examine dynamic allocation strategies in asset-liability management in order to formulate an integrated ALM model.
The results of the initial research project, relating to dynamic allocation strategies in ALM and illustrated by case studies on life insurance, retirement schemes and pension funds in Europe, were presented at the EDHEC-Risk Institutional Days at the CNIT in Paris on June 12 and 13, 2008.
[Press release announcing the launch of the research chair: 08/10/07]
Research output:
An Integrated Approach to Asset-Liability Management: Capital Structure Choices, Pension Fund Allocation Decisions and the Rational Pricing of Liability Streams
Previous version: November 2010; This version: June 2011
Lionel Martellini, Vincent Milhau
Correctly assessing the value of a pension plan in deficit with a weak sponsor company is a real challenge given that no comprehensive model is currently available for the joint quantitative analysis of capital structure choices, pension fund allocation decisions and their impact on rational pricing of liability streams. This paper is an attempt to fill this gap by analyzing the valuation of pension liabilities regarded as defaultable claims issued by the sponsor company to workers and pensioners in the context of an integrated model of capital structure. Our results show that leverage decisions have a strong impact on the fair value of pension liabilities, and conversely that the presence of a pension plan decreases the optimal leverage ratio. We also find that interior optimal values may exist for allocation decisions. [Press release announcing the publication of the research: 10/12/10]
Measuring the Benefits of Dynamic Asset Allocation Strategies in the Presence of Liability Constraints
March 2009
Lionel Martellini, Vincent Milhau
The results of the study suggest that it is not so much the presence of funding ratio constraints that is in itself costly for pension funds as their reluctance to implement risk-management strategies that are optimal given such short-term constraints.
According to EDHEC-Risk Institute, dynamic risk-management strategies can turn irreversible contributions into reversible contributions and short-term constraints into long-term constraints, hence the severe opportunity cost for pension funds that do not follow them. [Press release announcing the publication of the research: 18/06/09]
Related research:
New Frontiers in Benchmarking and Liability-Driven Investing
September 2010
Noël Amenc, Lionel Martellini, Felix Goltz, Vincent Milhau
This paper argues that novel forms of investment solutions should rely on the use of improved performance-seeking and liability-hedging building-block portfolios, as well as on the use of improved dynamic allocation strategies.
Managing Pension Assets: from Surplus Optimization to Liability Driven Investment
March 2006
Lionel Martellini
A paper introducing a formal continuous-time model of intertemporal asset allocation decisions in the presence of liability constraints, and discussing how recent industry trends such as liability-driven investment fit with respect to the theoretical optimally designed strategies.
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*Source: BNPP IP per 30 June 2011.
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