Most progress has been made in the area of portfolio management for long-term investors. A series of research papers has explored extensions of the basic strategic asset allocation model. Extensions include the role of housing and mortgage choice, pension fund indexation, choice of annuities, pension fund liabilites, alternative asset classes, model uncertainty, short-sale and liquidity constraints, regulation and its interaction with investments, and predictability and persistence of expected returns. All these extensions together provide a much deeper and robust understanding of the investment opportunities of both institutional investors and indivduals.
The second area of progress is the actual performance of pension funds in relation to other institutional performance. Differences in performance are being attributed to differences in incentives in pension funds and mutual funds leading to different agency relations.
2007
Research has concentrated on the three main topics within the theme: optimal portfolios, performance of the industry and individual behavior. The first topic looks at optimal portfolios for individuals taking into account their heterogeneity in human, financial and housing capital. Research papers have considered the optimal portfolios of individuals or households both during the wealth accumulation during working life, the demand and valuation of guarantee products close to retirement and the choice of annuities in the post-retirement phase. Illiquid housing wealth takes a special position in this research as the future house price risk is important for households. Demograhic changes can have a large effect on housing demand and house prices in different regions. This adds a large element of idiosyncratic risk to homeowners that is very difficult to hedge with financial in financial markets.
The optimal plans are confronted to what is available in the industry. Research from the theme participants has contributed to the debate on the trade-off between between low-cost collective contracts and provisions, and the heterogeneous optimal solutions for a heterogenoeous population. Part of this research also considers the additional value of intergenerational insurance inherent in DB elements of the pension contract and the agency conflicts that are present in the financial industry.
The final research results relate to actual individual behavior. Adding the behavioral finance literature it has been found that even financially more interested and literate individuals make bad investment decisions. Many individuals feel they are financially well-prepared for retirement. From a preliminary analysis of participation in the recently introduced Dutch Levensloop scheme it seems that individuals respond slowly but consistently to the opportunities in this plan.