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Article

Constraints and Innovations for Pension Investment:
The Cases of Risk Parity and Risk Premia Investing

Wai Lee
The Journal of Portfolio Management Spring 2014, 40 (3) 12-20; DOI: https://doi.org/10.3905/jpm.2014.40.3.012
Wai Lee
is CIO and director of research at the Quantitative Investment Group of Neuberger Berman in New York, NY.
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Abstract

In the current low real-yield environment, institutional investors are challenged as they try to achieve their often-fixed targeted returns within the confines of their investment policy guidelines. If much-discussed solutions, such as risk parity and risk premia investing, are the new answers, they must improve portfolio efficiency and flexibility in taking risks. This article explores the ways these proposed solutions may be successful. The author argues that the solutions neither introduce new assets that offer non-replicable, non-redundant return and risk characteristics, nor do they offer new asset-pricing theories that improve forecasts of asset returns or risks. Instead, their value proposition is more in the category of improved portfolio construction. They primarily benefit practitioners by providing more-efficient risk allocations, which they do by relaxing constraints to which pension investors are often subject, including restrictions on using leverage and short selling.

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The Journal of Portfolio Management: 40 (3)
The Journal of Portfolio Management
Vol. 40, Issue 3
Spring 2014
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Constraints and Innovations for Pension Investment:
The Cases of Risk Parity and Risk Premia Investing
Wai Lee
The Journal of Portfolio Management Apr 2014, 40 (3) 12-20; DOI: 10.3905/jpm.2014.40.3.012

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Constraints and Innovations for Pension Investment:
The Cases of Risk Parity and Risk Premia Investing
Wai Lee
The Journal of Portfolio Management Apr 2014, 40 (3) 12-20; DOI: 10.3905/jpm.2014.40.3.012
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    • RISK PARITY INVESTING
    • RISK PREMIA INVESTING
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