Pension schemes and fixed income investment

Document description

The purpose of this paper is to investigate the role that fixed income securities should play in pension scheme investment. In this paper I look at the investment characteristics of the various bond asset classes, including the nature of the income streams produced. I also look at the relationships between the various asset classes and their stability over time. I then look at the usefulness of the asset classes in the context of a pensioner portfolio, considering both capital values and income streams. I look at skew and excess kurtosis in the distributions of asset returns and consider the effect of their existence on the decision making process. Given that most asset models are calibrated using historical data, I do not carry out any modelling and instead analyse past data. Finally, I discuss practical issues that need to be considered, particularly in a United Kingdom context.