Do Institutional Investors Have Sensible Investment Beliefs?

Abstract

This article investigates the building blocks to successful investment strategies for institutional investors. It presents the results of a worldwide survey of investment beliefs, and finds striking differences in how pension funds and commercial asset managers view capital markets. Asset managers seem to use their investment beliefs to demonstrate their competitive advantage to current and potential clients. Pension funds, on the other hand, seem to use formulated investment beliefs as a tool for decision-making. We link investment beliefs to performance measures and find that pension funds with clear beliefs about asset pricing and risk diversification have better return/risk performance measures, as well as lower costs.

Keywords: Investment Beliefs, Investment Strategy, Pension Fund, Pension Fund Governance, Performance, Rotman