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EDHEC calls for “critical” research into inflation-linked corporate bonds

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  • EDHEC calls for “critical” research into inflation-linked corporate bonds

UK - The EDHEC-Risk Institute, part of France's EDHEC Business School, has underlined the "critical importance" of inflation-linked corporate bonds with the creation of a new research chair.

Led by Professor Lionel Martellini, the institute's scientific director, the chair will support all research examining the benefits of inflation-linked bonds for issuers and investors.

Martellini said inflation hedging had become a concern of critical importance for pension funds, given that pension payments were typically indexed with respect to consumer price or wage level indexes.

"While a number of recent papers have already documented the benefits of introducing sovereign inflation-linked bonds in the asset mix, our ambition in this research project is to extend these results to a detailed analysis of the benefits from a portfolio perspective of the introduction in the asset mix of inflation-linked debt issued by municipalities and corporations," he added.

The research will be of interest to pension funds in many European countries.

Conditional indexation is common in the Netherlands, and while pension funds in the country are not legally obliged to offer inflation-linked increases, many have done so in the past.

In the UK, the new government reintroduced a similar scheme, guaranteeing state pensions would either rise by 2.5% or in line with wage or price increases, whichever of the three measures was highest.

The new ‘triple guarantee' will take effect as of April 2011. Asset manager Rothschild is supporting the creation of the new chair, titled The Case for Inflation-Linked Corporate Bonds: Issuers' and Investors' Perspectives, with CEO Jean-Louis Laurens.

Laurens said the chair's area of research was "crucial" and that he hoped it would lead to "genuine improvements" in knowledge across the industry.

Martellini added: "Our focus will be on long-term investment decisions for both institutional and private investors, where the needs for inflation-hedging are most relevant."

 

 

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