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The Role of Multi-Family Properties in Hedging Pension Liability Risk: Long-Run Evidence

Author

Listed:
  • Martin Hoesli

    (University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School)

  • Louis Johner

    (University of Geneva - Geneva School of Economics and Management)

  • Jon Lekander

    (Aberdeen Property Investors Nordic Region)

Abstract

Pension funds aim to hold assets that match their future liabilities. For this purpose, there is a growing interest in multi-family properties as their returns should be positively related to wage growth and hence pension liabilities. Using data for Sweden over 145 years, we investigate the role that multi-family properties play in the context of a mixed-asset portfolio that aims to track wage growth. The benefits from holding multi-family properties are the greatest for low-risk allocation approaches. For more risky strategies, the role of real estate is also positive but more muted, and it varies greatly over time. Holding real estate was most beneficial during the first two decades of the 21st century. Multi-family properties are found to be the only asset class to be positively related to wage growth. We show that the net operating income acts as the transmission channel between wages and property returns.

Suggested Citation

  • Martin Hoesli & Louis Johner & Jon Lekander, 2023. "The Role of Multi-Family Properties in Hedging Pension Liability Risk: Long-Run Evidence," Swiss Finance Institute Research Paper Series 23-08, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2308
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    More about this item

    Keywords

    Multi-family properties; Mixed-asset portfolio; Pension fund; Wages; Long run; Sweden;
    All these keywords.

    JEL classification:

    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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