Wittingly or unwittingly, pensions and endowments’ investment strategies aid and abet activities that make the financial system more fragile.
The growing scale of institutions and the large amounts of money they need to deploy into high-risk investments is leading to consolidation among asset managers, higher global debt levels, short-term corporate behavior, and market instability, according to a paper published Wednesday by the Predistribution Initiative, a group that focuses on governance, investment practices, and the systemic risks of investments, among other things.
In the paper, group founder Delilah Rothenberg and her co-authors lay out a case that institutions’ investment strategies are in conflict with environmental, social, and governance goals to which they are increasingly committing. In an interview with
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NEW YORK, April 6, 2021 /PRNewswire/ The Predistribution Initiative, a multi-stakeholder effort working to improve investment structures and practices, today published a working paper titled: ESG 2.0: Measuring and Managing Investor Risks Beyond the Enterprise-Level. The full report is available at http://ssrn.com/abstract=3820316.
The paper analyzes existing approaches to asset allocation – from private equity and private credit to high yield bonds and leveraged loans – and finds that many of these high-risk investment strategies, executed at an institutional scale, are making the financial system and real economy more fragile by contributing to corporate and asset manager consolidation, increased global debt levels, higher rates of inequality, and market instability, among other negative impacts. The combination of these factors makes the system more susceptible to shocks like COVID-19 and climate change and conflicts with the cor