A Note On the Attitude of Pension Fund Investment Managers toward Mortgage-Backed Securities

Abstract

Mortgage-backed securities (MBS) have been successful in attracting a broad variety of financial institutions to invest in the mortgage market. By attracting a variety of new types of investors to the mortgage market and by integrating the mortgage market into the more highly developed corporate capital markets, the issuance of mortgage-backed securities resulted in both enlarging and stabilizing the flow of mortgage funds. However, pension funds, the largest source of new long-term capital in the United States, invest less than 5% of their assets in mortgage- backed securities. This study reports on a survey of investment manager attitudes toward mortgage-backed securities. The results show that managers, as a whole, are not enthusiastic about increasing mortgage holdings because of the lack of call protection and other complexities associated with the mortgage-backed securities.