FIN Working Paper No. 99-074
44 Pages Posted: 1 Mar 2000
Date Written: October 1999
This paper presents the results of a survey of U.S. institutional investors regarding their use of derivative securities and risk management practices. The survey focuses on three categories of institutional investors - pension plan sponsors, college and university endowments, and private foundations. Among many findings, we report that 46% of institutions permit their asset managers to use derivatives. The fraction permitting the use or derivatives ranges from 63% for pension plan sponsors, to 38% among college and university endowments and to 28% for private foundations. Of those institutions that permit derivatives use, only 59% reported open derivatives positions as of year-end 1997. Thus, only 27% of all respondents to the survey reported outstanding derivatives positions. However, other evidence suggests, that this is a conservative estimate of derivatives positions. Where derivatives are used, the positions tend to be small relative to total assets. The modal notional value of derivatives as a percent of assets is 1.0%, while the median value is 5.0%. Risk governance surrounding derivatives at institutional investors appears to be less intensive than at banks and securities dealers. However, the large majority of institutions (80%) place some limitations on the nature or extent of derivatives activity among internal or external managers.
JEL Classification: G1, G11, G23
Suggested Citation: Suggested Citation
Levich, Richard M. and Hayt, Gregory S. and Ripston, Beth A., 1998 Survey of Derivatives and Risk Management Practices by U.S. Institutional Investors (October 1999). FIN Working Paper No. 99-074. Available at SSRN: https://ssrn.com/abstract=204388 or http://dx.doi.org/10.2139/ssrn.204388