Private Assets Research Articles

Harnessing the Potential of Private Assets: A Framework for Institutional Portfolio Construction

Institutional portfolios are increasing allocations to illiquid private assets seeking better returns and diversification. However, as allocations increase, a portfolio’s liquidity structure changes, sometimes abruptly. How can a CIO increase their confidence with private asset allocations and unlock their potential? Using a corporate defined benefit pension plan as our example, we present and illustrate a practical framework (OASIS TM) that can help CIOs analyze how their top-down asset allocation and their bottom-up private investing activity interact to affect their portfolio’s ability to respond to liquidity demands in a multi-asset, multi-period setting. This is exactly what a CIO needs to know. Besides scheduled benefit payments, corporate pension plans have many unexpected liquidity demands which should be accounted for when evaluating liquidity risk. For example, a plan should be able to rebalance when market movements cause allocations to exceed risk limits. A plan also needs liquidity to meet unexpected capital calls and be prepared for exogenous cash flow events driven by corporate actions (e.g., pension risk transfers, corporate contributions, and merger and acquisition activities). Many plans also have asset allocation glide paths, conditional on the plan’s funding ratio, that present additional liquidity strains as it may be difficult to sell illiquid assets to satisfy new allocation targets. The CIO’s challenge is to maximize expected portfolio performance while keeping liquidity risk under control. By measuring the potential tradeoff between asset allocation, portfolio performance and multiple dimensions of liquidity risk, the OASIS framework can help CIOs make more informed portfolio management decisions.

A Zero-Order Flood Damage Model for Regional-Scale Quick Assessments

Quantitative data on observed flood ground effects are precious information to assess current risk levels and to improve our capability to forecast future flood damage, with the final aim of defining effective prevention policies and checking their success. This paper presents the first collection and analysis of flood damage claims produced in Italy in the past 7 years since a homogeneous national procedure for damage recognition became available. The database currently contains more than 70,000 claims referring to significant events and shows good homogeneity on the intensity of the related phenomena. We then propose an empirical model, based on observed data, to allow for a quick estimation of direct damage to private assets (i.e., residential buildings), based only on the knowledge of the perimeter of the flooded area. Single model calibration was performed at the multi-regional scale, focused on southern Italy. Model validation shows encouraging performances, considering the considerable natural uncertainty that characterizes this type of estimate. The procedure is of great interest when there is a need to evaluate, however roughly, flood damage in the immediacy of the event to assess the extent of the flood effects and to plan support actions for the affected communities.

Buy, Sell or Hold? The Information in Institutional Real Estate Investor Consensus

We investigate whether the consensus of institutional investors to buy, sell, or hold a particular property type in a particular quarter can improve the information environment in commercial real estate markets. In particular, we analyze the drivers of investor consensus as well as the informative value of buy and sell consensus for future returns. For the period of 1996 to 2018 and for eight sub-property types, we find that private leasing (space market) information predominantly drives the buy and hold consensus, while private asset market information is more important for the sell consensus. Publicly available equity and debt capital market information has the highest explanatory power for the sell and hold consensus. Furthermore, buy and sell consensus has informative value for future returns. The component of buy consensus that is explained by private information has the highest informative value for future returns, particularly in periods of financial crisis and poorly performing real estate markets. On the other hand, the component of sell consensus that is explained by public information has the highest informative value for future returns. Our findings have implications for institutional investors and portfolio managers as they suggest that the survey-based consensus of institutional investors contains valuable information to formulate return expectations, identify trends, and make investment decisions.

A Survey on Integrated Circuit Trojans

Traditionally, computer security has been associated with the software security, or the information-data security. Surprisingly, the hardware on which the software executes or the information stored-processed-transmitted has been assumed to be a trusted base of security. The main building blocks of any electronic device are Integrated circuits (ICs) which form the fabric of a computer system. Lately, the use of ICs has expanded from handheld calculators and personal computers (PCs) to smartphones, servers, and Internet-of-Things (IoT) devices. However, this significant growth in the IC market created intense competition among IC vendors, leading to new trends in IC manufacturing. System-on-chip (SoC) design based on intellectual property (IP), a globally spread supply chain of production and distribution of ICs are the foremost of these trends. The emerging trends have resulted in many security and trust weaknesses and vulnerabilities, in computer systems. This includes Hardware Trojans attacks, side-channel attacks, Reverse-engineering, IP piracy, IC counterfeiting, micro probing, physical tampering, and acquisition of private or valuable assets by debugging and testing. IC security and trust vulnerabilities may cause loss of private information, modified/altered functions, which may cause a great economical hazard and big damage to society. Thus, it is crucial to examine the security and trust threats existing in the IC lifecycle and build defense mechanisms against IC Trojan threats. In this article, we examine the IC supply chain and define the possible IC Trojan threats for the parties involved. Then we survey the latest progress of research in the area of countermeasures against the IC Trojan attacks and discuss the challenges and expectations in this area. Keywords: IC supply chain, IC security, IP privacy, hardware trojans, IC trojans DOI: 10.7176/CEIS/12-2-01 Publication date: April 30 th 2021

Floating protective barriers: evaluation of seaworthiness through physical testing, numerical simulations and field deployment

Floating protective barriers provide essential protection to critical governmental, commercial, and private assets that are vulnerable to water-borne intrusion, such as liquefied natural gas terminals, tankers, etc. These barriers require additional evaluation in the case of their deployment at significant water depth in offshore environments. The seaworthiness of the Triton® barrier design developed by HALO Maritime Defense Systems (US) was investigated through a combination of field deployment, physical testing and numerical simulations. The full-scale Triton® barrier, deployed and inspected south-southwest of White Island, Isles of Shoals, New Hampshire, provided important information on its dynamic behavior and the overall structural integrity under monitored environmental conditions. Physical tests of a Froude-scaled barrier model were conducted in Chase Ocean Engineering Laboratory wave tank at the University of New Hampshire to properly measure response of the structure and its mooring to different single-frequency waves directed parallel and normal to the model. Both physical tests and field study load cases were numerically simulated in finite element Hydro-FE software. The comparisons indicated a good correspondence between physical tests and numerical models in terms of heave, pitch, roll and force response amplitude operators. Overall, the full-scale Triton® barrier has demonstrated robust performance during the offshore field deployment.

The Norway Model in Perspective

The authors’ 2012 article on the Norway model spotlighted that country’s sovereign wealth fund. They argued that Norway provides a coherent and compelling approach to managing long-term pools of assets. Since then, the Norwegian Government Pension Fund has grown in scale and complexity, and its structure has evolved. Meanwhile, other models for asset management have been put forward. In this article, the authors review Norway’s investment strategy in the light of the last decade’s experience, put it in a broader context by comparing Norway with alternative approaches, and reexamine the fund’s commitment to responsible investing. Since the authors wrote their earlier paper, environmental and social issues have come to the fore, and there is still much to learn from the Norway model. <b>TOPICS:</b>Foundations &amp; endowments, portfolio theory, portfolio construction, ESG investing <b>Key Findings</b> ▪ Today the Norwegian Government Pension Fund is the world’s largest sovereign wealth fund. It remains a model for long-horizon investors, including those of more modest size. ▪ Norway has considerable freedom in how to invest its assets. It is an asset allocator, not a liability matcher. ▪ Norway is cost conscious and emphasizes transparency, and this influences its strategy. Other investors favor private assets and may prefer different approaches, such as the Yale model or the Canada model. ▪ The fund provides a model for financial investors who wish to be known for transparency and clarity of governance, low management costs, high liquidity, and high standards of ethical behavior.

Strategic Asset Allocation for Endowment Funds

An endowment fund serves as a permanent source of capital to support a specific mission. It has, in the case of a university, dual goals of providing current financial support to the university and preserving long-term purchasing power to ensure that support continues in perpetuity. This article explores a methodology for constructing strategic asset allocation for endowment funds in the context of these competing long-term investment goals. <b>TOPICS:</b>Foundations &amp; endowments, portfolio construction <b>Key Findings</b> ▪ In constructing a strategic asset allocation for an endowment, a traditional mean-variance optimization framework alone does not provide sufficient context to generate comprehensive forward-looking analysis. However, adding additional measures such as maximizing the probability of achieving investment goals or minimizing relevant downside distress measures over the long term can improve the analysis. ▪ A typical endowment’s asset allocation, with an equity orientation and tilt toward alternative asset classes, nearly maximizes the probability of achieving the dual long-term investment goals of meeting a spending rate target while preserving real capital, as well as minimizes endowment-specific downside risk measures. ▪ Optimal portfolio choices are dependent on underlying return expectations across asset classes. Although expected returns are typically the highest for private investments, there are limits to investing in private asset classes, including an endowment’s liquidity requirements and ability to access the best-performing managers.

New Perspective on Investment Models

What is the secret ingredient to securing better long-term investment outcomes? Investors seldom consider institutional investors from an organizational and strategic perspective. Thinking in terms of investment models highlights a severely under-researched area. The authors propose that this different lens is required to make sense of the dynamics in the investment industry and has a lot to offer to boards that are open to this. Five models dominate the investment industry, and the authors identify an emergent one that has its roots in the existing models but takes a strong societal perspective, which they denote the <i>prudent society</i> investment model. Thinking in terms of investment models, boards and decision makers will be able, far better than today, to determine why, how, and what is needed for investment success. <b>TOPICS:</b>Pension funds, portfolio theory, financial crises and financial market history <b>Key Findings</b> ▪ Every investor works with an investment model: a unique combination of goals, risk appetite, investment beliefs, and governance of investment implementation. ▪ Making the underlying assumptions and consequences explicit is key; otherwise, achieving long-term success is a struggle. ▪ Investment models evolve slowly. The increased focus on long-term, private assets and the incorporation of societal goals are new elements but do not (yet) form an entirely new model. Thus, we have to keep learning from and adapting the existing ones.

Asset Allocation and Private Market Investing

Investors have been increasing their allocations to private assets, seeking higher returns and better portfolio diversification. However, as this allocation increases, the liquidity characteristics of their portfolios change. The authors create a framework that links bottom-up private asset investing with top-down asset allocation. Private asset cash flows are consistently modeled together with public asset returns and risk that, in turn, drive portfolio construction. This helps investors analyze how allocations to illiquid private assets, in combination with their commitment strategy, may affect their portfolio’s ability to respond to various liquidity demands. By measuring the potential trade-off among asset allocations, total portfolio performance, and the frequency of certain liquidity events with different severities, this framework can help investors quantify the interaction between their portfolio structure and performance and formalize their decision making around portfolio liquidity choices. <b>TOPICS:</b>Real assets/alternative investments/private equity, portfolio construction, performance measurement, tail risks <b>Key Findings</b> ▪ We present a framework to systematically address various liquidity issues for multi-asset portfolios. ▪ Liquidity requirements have a clear impact on portfolio structure and expected performance. ▪ Commitment pacing of private investments plays a crucial role in the trade-off between liquidity and performance.

Archeologia del paesaggio e relazioni uomo-ambiente: risorse, natura e luoghi in Italia settentrionale tra V e X secolo d.C.

Lanscape archaeology and human-environment relationship: resources, nature and settlements in northen Italy between 5th and 10th century The role that the environment has played in human past has taken on an ever greater presence in archaeology literature, following the progressive abandonment of the idea that the times of change of environmental ecosystems were necessarily of a very long period. The reconstruction of the topographical structures of forest spaces has in some researches assumed a decisive role to understanding the rhythms of life of the communities. The possibility of making different types of data converge: from archival to topographical ones (from the document to the ground, we could say) undoubtedly opens up roads in this direction. The paper addresses the man-environment relationship in the Middle Ages through recent different case studies of the Po area, starting with sites such as the plain village of Nogara, or the Benedictine monastery of Leno or the alpine village of Piuro. The basic problem remains that of relating the archaeological settlements with the paleoenvironmental elements in a systematic and ever more precise way. In the long phase between the 5th and 10th centuries, the paleoenvironmental data that seem to emerge in northern Italy would show a progressive consolidation of a man-environment relationship mainly centered on the management of natural resources, such as the forest. The changes in residential construction, towards almost exclusively wooden building, seem to involve the management of these collective, public or private assets. The changes, however, which seem to occur mostly within the 5th-7th century AD, should be evaluated with greater precision: processes of erosion, denudation of slopes in mountain areas, rather than the development of swampy or wooded areas in lowland areas underline a diversification of environmental transformations, which perhaps could translate, on a local scale, more general climatic dynamics. Regarding 9th-10th century, the study, not only of some sites, but of the surrounding landscape, has shown how the correlations with human activities are never completely absent and there is to changes in the shape of resource management, rather than to real abandonment of spaces. From this perspective, it is evident, on a methodological level, the need to systemically use paleo-environmental investigations/ multidisciplinary approaches, within the more ‘traditional’ archaeological research, in order to restore the complexity of environmental changes and the characteristics of different landscapes. [Author]

Private assets for public benefit: the challenge of long-term management of domestic rainwater tanks

Abstract This study explored the relationship private landowners have with their domestic rainwater tank and how that relationship influences the reliability of privately operated rainwater tanks for long-term performance and delivery of service. It found that tank owners generally placed a high value on their tank, desired to have them fully operational and made a reasonable effort to keep them functioning. However, the frequency and extent of maintenance action and effort was variable, and in the context of a private residence, rainwater tanks were typically afforded a low relative priority for repair when compared with other residential assets. This low relative priority could be a primary driver for the reported delay between when a fault occurs with the tank and when it is repaired. This ‘repair lag’ means that a portion of domestic rainwater tanks are likely to be non-operational at any one time. When planning a decentralised system for the management of stormwater, redundancies should be included to cover these gaps in service delivery. It is also recommended that programmes that support private landowners to maintain their rainwater tanks are implemented to minimise repair lag.

TOWARD A NEW COMPARATIVE PUBLIC LAW OF CENTRAL BANK LEGISLATION: Designing Legislative Mandates for Central Bank Private Securities Assets Purchases and Nominal GDP Targeting

Abstract What role could unconventional monetary policy – and particularly unconventional policies like private asset purchases under a quantitative easing or lender of last resort scheme – play in influencing economic growth directly? A wide literature in economics explores the pros and cons of using these policies. However, most studies also point to the uncertain and antagonistic legal basis for such purchases. In this paper, we show how the statutory mandate for nominal GDP targeting could best put in place the legal foundations for such asset purchases. We review the legislative and regulatory bases for private securities purchases made by central banks in a sample of countries. We discuss – if legislators and policymakers wanted to – how they might introduce clearer mandates to make such purchases into their public law. We finally show how legal authorizations for GDP targeting might (and probably should) provide for such authorisations. Our discussion sheds light on the fascinating and almost completely ignored area of public law, namely central bank law.

A Rising Private Asset Class: Core+ Real Estate Debt

A Rising Private Asset Class: Core+ Real Estate Debt

Getting Real about Taxes: Offshore Tax Sheltering and Realism’s Ethic of Responsibility

This paper tackles the issue of offshore tax sheltering from the perspective of normative political realism. Tax sheltering is a pressing contemporary policy challenge, with hundreds of billions in private assets protected in offshore trusts and shell companies. Indeed, tax sheltering produces a variety of empirical dilemmas that render it a distinctive challenge for global governance. Therefore, it is crucial for normative political theorists to confront this problem. A realist approach offers three distinct advantages. First, it relaxes the theoretical burden by starting from the real practice of tax evasion, rather than from an abstract theory of equality or justice. Second, realism’s focus on power and its acceptance of coercion open up new strategies for addressing the problem than would be allowed by theories with a stronger emphasis on consensus. Third, if politicians fail to pursue effective reform, realism’s ethic of responsibility provides clear political reasons for why they should be held accountable.

The Effect of the Bank of Japan’s ETF Purchases on Firm Performance

We examine how the Bank of Japan’s purchase of exchange traded funds (ETFs) affects companies’ profit, innovation investment, and governance using a difference-in-differences method. The Bank of Japan has purchased ETFs tracking Nikkei 225 and TOPIX since December 2010. The results show that the ETF purchase policy lowered the return on assets of TOPIX and Nikkei 225 companies by 0.5–2.0% and 1.0–3.4%, respectively, and they are robust to different model specifications. Our study enhances the current understanding of the unintended effect of the central bank purchasing private assets.

The importance of beliefs in shaping macroeconomic outcomes

Abstract For the past 30 years of the history of macroeconomic thought, the Indeterminacy School of Macroeconomics has used general equilibrium models with indeterminate equilibria to understand the independent role of beliefs in shaping macroeconomic outcomes. In this paper I review the most recent advances in the indeterminacy agenda, Keynesian Search Theory, and I advance that agenda by introducing self-fulfilling beliefs to a Keynesian Search Model in two different ways. One variant of the model is driven by an exogenous process for investment expenditure. If investment is exogenous, the only way to restore full employment is by replacing private investment with public investment. The second variant of the model is driven by consumer confidence. If consumer confidence is exogenous, treasury or central bank intervention in the asset markets is a more effective means of restoring full employment than fiscal policy. In either scenario, increased government consumption will not be effective at maintaining full employment in the face of permanently depressed beliefs about the value of private assets.

Liquidity and the International Allocation of Economic Activity

AbstractI present a model to study the linkages between the market for liquidity and the international allocation of economic activity. Private assets' liquidity properties affect interest rates, with consequences on entry, production, and market capitalization. In a closed economy, the liquidity market increases the size and productivity of the sector that generates liquid assets. In an open economy, cross‐country differences in financial development generate an allocation of economic activity favoring the country supplying the most liquid assets. Supporting the theory, I show that asset acceptability as collateral is negatively correlated with yields, and positively correlated with measures of economic activity.

The Private Production of Safe Assets

ABSTRACTUsing high‐frequency, granular panel data on short‐term debt securities issued in Europe, we study the existence, empirical boundaries, and fragility of private assets' safety. We show that only securities with the shortest maturities, issued by banks (certificates of deposit, or CDs), benefit from a safety premium. The supply of such CDs responds positively to excess safety demand. During periods of stress, this relation vanishes for all issuers of private securities, even though their aggregate volumes do not collapse. Other dimensions of heterogeneity, including issuers' balance sheets or their domicile countries' fiscal capacity, are less relevant for private safety.

Cenland Corporation: The CIO and the Freezing of the DB Plan

It is the afternoon of 15 October 2020 and Dan Woodbridge, 50, CIO of Cenland’s in-house management organization for the Defined Benefit (DB) plan, just finished a Zoom call with Denise Liu, Cenland’s CFO. During this regular update meeting, Dan and Denise reviewed the recently released Q3 reports. Despite a volatile year, Cenland’s well-diversified DB portfolio is again performing well, and better than peers. However, Denise’s big news was that given the “lower-for-longer” market environment, the Board decided to accelerate the de-risking of the DB plan by freezing the plan at the end of 2020. In recent years, Cenland’s CEO has been zealous about reducing pension cost and enhancing the company’s competitiveness. Cenland is a legacy telecommunications company facing intense price pressure from start-up companies that do not sponsor any DB plans. Last year’s decision to close the DB plan was the first step to address this issue. In addition, Dan recalled the CEO recently expressed his annoyance about the volatility in funding DB obligations due to fluctuating equity markets and increasingly lower interest rates, which, in turn, affect the company’s earnings volatility. After the decision to close the DB plan, Dan knew Cenland would at some point take further actions to align the company’s benefits with current industry standards. But, freezing the plan just a year later came as a bit of a shock as firms typically take a few years after closing to make this next step. Denise also asked Dan to start putting together an agenda for the yearly asset allocation review which will be a one-day virtual conference in early December. For this year’s meeting, given the large allocations to illiquid private assets in the DB portfolio, Denise asked Dan to discuss their DB plan’s risk from a cash flow risk perspective (i.e., always having enough cash from pre-defined liquidity sources to meet liquidity demands such as pension benefit payments, GP capital calls, etc.) instead of the traditional volatility risk angle. This is important as a liquid asset and an illiquid asset could have the same volatility, but the cash flow properties of these two assets might be very different.1 In addition, Denise expects Dan to show the tradeoff between liquidity and performance of the DB portfolio under possible alternative asset allocations that are currently under consideration. After rushing into the living room to help his youngest son log in to his algebra class, Dan sat outside with his laptop and home-made coffee. Surveying his backyard, Dan took a moment to enjoy this precious quiet moment and began to reflect on this past year. Dan thought turning 50 would be the year’s biggest event, but he always knew that life is never with a lack of surprises. Since the pandemic in early March, his team switched to remote working mode. He’s been juggling between managing a newly-closed DB plan and helping his three sons keep up with their remote class schedules, especially the little one. Fortunately, his investment team quickly adjusted to the new normal and has been performing as efficiently as before. Dan sent his investment team a Zoom invite for tomorrow afternoon to break the news about freezing the DB plan and to discuss preparing analyses and recommendations for the yearly asset allocation review meeting. Before meeting with his team, Dan spent some time putting his thoughts together and gathering some plan information to facilitate tomorrow’s conversation.

A Route to Commons-Based Democratic Monies? Embedding the Governance of Money in Traditional Communal Institutions

The financial crisis of 2008 resulted, among other, on a popular awareness that the monetary system was not working for the interest of the many. The blockchain technology that was launched soon after offered monetary activists and entrepreneurs a tool to re-imagine, re-claim and re-organize money along a vague ideal of a commons paradigm. A wave of monetary experimentation ensued that took a most concrete form in two entrepreneurial spaces: crypto-currencies with global ambitions and local currencies based on communal democracy. Seemingly distinct on the outset, both strands share a determination to develop a monetary system that serves the many. This has led participants on both sides to reach out toward each other. The article looks at one such attempt: the Sarafu community crypto-currencies in Kenya. These currencies are embedding the creation of money in traditional community savings groups. Using Eleanor Ostrom’s framework and building on interview and ethnographic material, the article identifies the economic logic of mutualization proper of the savings groups as one that transforms private assets (one’s savings) into a financial commons for the group. To build on this logic, the Sarafu model in-the-making is embedding the production and governance of the new community cryptocurrencies in these saving groups. In that doing, Sarafu has the potential to advance a new architecture of money. However, findings suggest that the standardization and automation of the new monetary rules through smart contracts impose neoliberal ideas that slipped into the code, risking the erosion of the very communal decision-making processes that made savings groups interesting anchors of a money commons in the first place.