Toggle Mobile Menu
Princeton Community

Jiwon Lee On Investment constraints of public pension funds and maturity management

Jiwon Lee
April 8, 2025
12:15 pm - 1:15 pm
Student Research Workshop

More from this series
Room 108

This study investigates the investment constraints and trading behavior of US public pension funds in bond markets. While they are traditionally viewed as long-term investors, novel data on liability duration and security holdings reveals that these funds exhibit a significant duration mismatch and a tilt toward short-term corporate bonds despite long-term liabilities. To explain this, I examine the role of another investment constraint – target funding ratios. The more constrained they are, the more actively they invest in short-term and high-yield bonds, implying a reaching-for-rating strategy than reaching for maturity. I further explore the main drivers of their persistent underfunded status.