The impact of alternative assets on the performance of Brazilian private pension funds

Flores, Francis Amim; Campani, Carlos Heitor; Roquete, Raphael Moses

doi:10.1590/1808-057x202111870

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Original Article • Rev. contab. finanç. 32 (86) • May-Aug 2021 • https://doi.org/10.1590/1808-057x202111870 copy

The impact of alternative assets on the performance of Brazilian private pension funds^* * Carlos Heitor Campani is grateful to the Catedra Brasilprev em Previdência, to the National Council for Scientific and Technological Development (CNPq), to the Rio de Janeiro State Foundation to Support Research (Faperj), and to the Escola Nacional de Seguros (ENS) for their financial support to conduct this study.

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

This article assesses the impact of alternative assets on the performance of Brazilian private pension funds. Few studies touch on this topic in Brazil and most only investigate the addition of alternative assets and their impact on the performance. The market of open private pension funds in Brazil has been growing rapidly in recent years and gaining much relevance, especially after the announcement of the reformulation of the Brazilian pension system. In 2018, the Free Benefit Generating Plan (PGBL) and the Free Benefit Generating Life (VGBL) represented more than 94% of total assets in their sector. The Brazilian specially constituted investment funds (FIEs) of PGBL and VGBL private pension plans are characterized by their dependence on fixed income assets. Brazil currently faces an unprecedent low interest rate scenario - which, following a worldwide panorama, seems to be set for a long time - and pension fund managers must search for alternative investments that aggregate both risk premia and diversification. The results of this study may support managers in this little-discussed matter. We compare the performance of FIEs without additional alternative assets versus the portfolio with alternative assets, adding a hedge fund index, an equity mutual funds index, a commodity index, an electric power index, a public utilities index, a gold index, and a real estate index. Several performance measures were used, considering Brazilian regulations and a rebalancing strategy. Our results showed that almost all alternative assets used in this study improved the performance of the Brazilian FIEs of PGBL and VGBL private pension plans, especially the public utilities index and the hedge fund index. Some even improved the portfolio tail risk.

Keywords:
private pension; alternative assets; performance measurement

	Aggressive sample portfolio	All aggressive funds’ portfolios	All FIEs of PGBL and VGBL portfolio
Jarque-Bera (p-value)	0.9430	0.8424	0.7890
μ	0.0077	0.0077	0.0075
σ	0.0205	0.0136	0.0093
Skewness	0.0713	0.1324	-0.0913
Kurtosis	-0.0112	0.0676	0.3120
Minimum monthly return	-0.0424	-0.0287	-0.0188
Maximum monthly return	0.0652	0.0429	0.0331

	UTIL	IMOB	IEEX	IFA	IHFA	Gold	ICB
μ	0.0130	0.0120	0.0112	0.0106	0.0099	0.0088	0.0062
σ	0.0564	0.0928	0.0541	0.0377	0.0087	0.0503	0.0329
Skewness	0.1518	1.9442	0.2251	0.0974	0.0456	-0.0434	0.3910
Kurtosis	1.4498	8.2945	1.1172	0.6938	1.7585	0.0433	-0.1354
Minimum monthly return	-0.1267	-0.1413	-0.1272	-0.0855	-0.0220	-0.1288	-0.0611
Maximum monthly return	0.2235	0.5395	0.1953	0.1299	0.0373	0.1503	0.0930

	Avrg ΔMPPM over original portfolio		Avrg Δalpha over original portfolio		Avrg ΔSharpe over original portfolio		Avrg ΔUPR over original portfolio		Avrg ΔVaR over original portfolio
	Mean	p-val	Mean	p-val	Mean	p-val	Mean	p-val	Mean	p-val
UTIL	0.314%	0.000	0.032%	0.000	0.285%	0.000	0.620%	0.000	0.072%	0.000
IMOB	0.244%	0.000	0.034%	0.000	-0.027%	0.418	0.868%	0.000	0.252%	0.000
IEEX	0.201%	0.000	0.028%	0.000	0.037%	0.302	0.427%	0.000	0.081%	0.000
IFA	0.179%	0.000	0.022%	0.000	0.072%	0.062	0.524%	0.000	0.046%	0.000
IHFA	0.165%	0.000	0.009%	0.000	0.227%	0.000	0.569%	0.000	-0.169%	0.000
Gold	0.078%	0.000	0.015%	0.000	-0.148%	0.066	0.252%	0.000	-0.256%	0.000
ICB	-0.044%	0.000	-0.003%	0.000	-0.302%	0.002	0.002%	0.490	-0.233%	0.000

	Original	UTIL	IMOB	IEEX	IFA	IHFA	Gold	ICB
Avrg Return	0.29%	0.32%	0.32%	0.31%	0.31%	0.31%	0.30%	0.29%
Maximum Avrg Return	0.57%	0.58%	0.57%	0.57%	0.57%	0.56%	0.56%	0.55%
Minimum Avrg Return	0.05%	0.09%	0.09%	0.08%	0.08%	0.08%	0.07%	0.06%
Avrg Std. Dev	2.30%	2.36%	2.51%	2.35%	2.33%	2.20%	2.15%	2.15%
Avrg Return/Std. Dev.	12.82%	13.62%	12.69%	13.24%	13.30%	13.90%	13.80%	13.37%
Avrg Kurtosis	0.86	0.72	0.71	0.70	0.66	0.83	0.70	0.78
Avrg Skewness	0.13	0.06	0.29	0.07	0.09	0.12	0.07	0.14
Avrg Carhart alpha	0.03%	0.07%	0.07%	0.06%	0.05%	0.04%	0.03%	0.02%

Assets	SAW Score	Ranking Position
UTIL	1.14	1
IMOB	0.96	2
IHFA	0.49	3
Gold	0.46	4
IEEX	0.35	5
IFA	0.34	6
ICB	0.22	7

	Recession Jan-2009 / Mar-2009		Growth Apr-2009 / Mar-2014		Recession Apr-2014 / Dec-2016		Slow Recovery Jan-2017 / Dec-2018
	ΔMPPM	p-val	ΔMPPM	p-val	ΔMPPM	p-val	ΔMPPM	p-val
UTIL	0.523%	0.000	0.254%	0.000	0.275%	0.000	0.493%	0.000
IMOB	1.717%	0.000	0.526%	0.000	-0.615%	0.000	0.438%	0.000
IEEX	0.699%	0.000	0.111%	0.297	0.269%	0.000	0.273%	0.000
IFA	0.396%	0.000	0.186%	0.000	-0.358%	0.000	0.873%	0.000
IHFA	-0.195%	0.000	0.240%	0.000	0.232%	0.000	-0.072%	0.000
Gold	-0.183%	0.000	0.058%	0.000	0.039%	0.000	0.215%	0.000
ICB	-2.375%	0.000	0.119%	0.000	-0.060%	0.008	-0.163%	0.000

	Avrg ΔMPPM over UTIL index		Avrg Δalpha over UTIL index		Avrg ΔSharpe over UTIL index		Avrg ΔUPR over UTIL index		Avrg ΔVaR over UTIL index
	Mean	p-val	Mean	p-val	Mean	p-val	Mean	p-val	Mean	p-val
IMOB	-0.070%	0.000	0.002%	0.000	-0.312%	0.000	0.247%	0.002	-0.179%	0.000
IEEX	-0.113%	0.000	-0.004%	0.000	-0.248%	0.000	-0.193%	0.000	-0.009%	0.049
IFA	-0.135%	0.000	-0.010%	0.000	-0.212%	0.000	-0.489%	0.000	0.026%	0.001
IHFA	-0.149%	0.000	-0.023%	0.000	-0.058%	0.269	-0.096%	0.025	0.241%	0.000
Gold	-0.236%	0.000	-0.017%	0.000	-0.433%	0.000	-0.369%	0.000	0.328%	0.000
ICB	-0.358%	0.000	-0.035%	0.000	-0.587%	0.000	-0.619%	0.000	0.305%	0.000

Window size [first half (formation period) / second half (evaluation period)]	ΔMPPM		Δalpha
	b_MPPM	t-stat	$b_{α}$	t-stat
12 months / 12 months	-0.39	-14.05	0.14	4.99
24 months / 24 months	-0.01	-0.16	-0.77	-12.82
30 months / 30 months	-0.54	-9.38	-0.76	-25.33

	Avrg ΔMPPM over original portfolio with ρ = 0.85		Avrg ΔMPPM over original portfolio with ρ = 2		Avrg ΔMPPM over original portfolio with ρ = 3
	Mean	p-value	Mean	p-value	Mean	p-value
UTIL	0.31%	0.00	0.30%	0.00	0.29%	0.00
IMOB	0.24%	0.00	0.19%	0.00	0.14%	0.00
IEEX	0.20%	0.00	0.19%	0.00	0.18%	0.00
IFA	0.18%	0.00	0.18%	0.00	0.17%	0.00
IHFA	0.16%	0.00	0.20%	0.00	0.24%	0.00
Gold	0.08%	0.00	0.14%	0.00	0.19%	0.00
ICB	-0.04%	0.00	0.01%	0.10	0.06%	0.00

Weights		Avrg ΔMPPM over original portfolio		Avrg Δalpha over original portfolio		Avrg ΔSharpe over original portfolio		Avrg ΔUPR over original portfolio		Avrg ΔVaR over original portfolio
Weights		Mean	p-val	Mean	p-val	Mean	p-val	Mean	p-val	Mean	p-val
1% strategy	UTIL	0.063%	0.000	0.006%	0.000	0.076%	0.000	0.104%	0.000	0.017%	0.000
	IMOB	0.051%	0.000	0.007%	0.000	0.032%	0.023	0.157%	0.000	0.045%	0.000
	IEEX	0.041%	0.000	0.006%	0.000	0.032%	0.010	0.061%	0.000	0.016%	0.000
	IFA	0.036%	0.000	0.004%	0.000	0.031%	0.005	0.024%	0.001	0.010%	0.000
	IHFA	0.033%	0.000	0.002%	0.000	0.044%	0.000	0.088%	0.000	-0.034%	0.000
	Gold	0.016%	0.000	0.003%	0.000	-0.005%	0.355	0.014%	0.294	-0.057%	0.000
	ICB	-0.010%	0.000	-0.001%	0.000	-0.048%	0.004	-0.025%	0.178	-0.051%	0.000
8% strategy	UTIL	0.488%	0.000	0.050%	0.000	0.470%	0.000	1.081%	0.000	0.154%	0.000
	IMOB	0.334%	0.000	0.046%	0.000	-0.130%	0.251	1.265%	0.000	0.447%	0.000
	IEEX	0.323%	0.000	0.046%	0.000	0.077%	0.266	0.841%	0.000	0.171%	0.000
	IFA	0.272%	0.000	0.034%	0.000	0.073%	0.204	0.219%	0.000	0.085%	0.000
	IHFA	0.261%	0.000	0.013%	0.000	0.369%	0.000	0.885%	0.000	-0.269%	0.000
	Gold	0.174%	0.000	0.031%	0.000	-0.161%	0.132	0.613%	0.000	-0.375%	0.000
	ICB	-0.202%	0.000	-0.008%	0.000	-0.843%	0.000	-0.030%	0.383	-0.260%	0.000

	Avrg Δalpha over original portfolio (five-factor model)		Avrg Δalpha over original portfolio (eight-factor model)
	Mean	p-value	Mean	p-value
IMOB	0.042%	0.000	0.034%	0.000
UTIL	0.030%	0.000	0.032%	0.000
IEEX	0.026%	0.000	0.028%	0.000
IFA	0.019%	0.000	0.022%	0.000
Gold	0.001%	0.135	0.015%	0.000
IHFA	0.009%	0.000	0.009%	0.000
ICB	-0.004%	0.000	-0.003%	0.000

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