Mortgage Investments by Pension Funds After the Financial Crisis

The paper studies a cause of recent increases in mortgage investments by pension funds and finds it from their experiences in recovery process after the crisis as well as the new financial assessment framework(FTK) introduced in 2015. Pension funds that were subjected to recovery plans are identified as less-immunized funds, and I hypothesize that a low degree of immunization has motivated pension funds to invest more in mortgages after the crisis. They have been seeking better risk/return trade off, and mortgages have become even safer investments since the introduction of several new regulations, and they seek to further hedge their interest rate risks. This is the first academic paper using DNB (Dutch Central Bank)’s unique and new dataset, loan-level Data(LLD) on institutional investors, since it has never been collected before. Both descriptive statistics and the estimation results of the difference in difference approach reveals the validity of my hypothesis. Low immunization and new supervisory frameworks are the cause of the recent surge in mortgage holding by pension funds.