Associate Professor of Business Administration
Victoria Ivashina is an Associate Professor in the Finance Unit of the Harvard Business School, and a faculty research fellow at the National Bureau of Economic Research. Currently, Professor Ivashina develops and teaches a course on Private Equity Finance in the second year of the MBA program. Her research is in the area of applied corporate finance with a primary focus on credit markets and private equity.
Professor Ivashina has made numerous presentations to academic and practitioner audiences. Her research has appeared in in leading academic journals including the Journal of Finance, the Journal of Financial Economics, The Review of Financial Studies, The American Economic Review, and the Journal of Monetary Economics has and been covered in several media outlets including The Economist, The Wall Street Journal, and Financial Times. She was awarded Harvard Business School’s Berol Fellowship and Hellman Family Fellowship for research excellence. Professor Ivashina holds a Ph.D. in Finance from the Leonard N. Stern School of Business, New York University and a B.A. in Economics from Pontificia Universidad Católica del Perú.
Reaching for Yield in the Bond Market
Reaching-for-yield—investors’ propensity to buy riskier assets in order to achieve higher yields—is believed to be an important factor contributing to the credit cycle. This paper presents a detailed study of this phenomenon in the corporate bond market. We show that insurance companies, the largest institutional holders of corporate bonds, reach for yield in choosing their investments. Consistent with lower rated bonds bearing higher capital requirement, insurance firms’ prefer to hold higher rated bonds. However, conditional on credit ratings, insurance portfolios are systematically biased toward higher yield, higher CDS bonds. Reaching-for-yield exists both in the primary and the secondary market, and is robust to a series of bond and issuer controls, including bond liquidity and duration, and issuer fixed effects. This behavior is related to the business cycle, being most pronounced during economic expansions. It is also more pronounced for firms with poor corporate governance and for which the regulatory capital requirement is more binding. A comparison of the ex-post performance of bonds acquired by insurance companies shows no outperformance, but higher systematic risk and volatility.
The Disintermediation of Financial Markets
In recent years, institutions have increasingly invested directly in private equity, bypassing the traditional intermediated fund structure. According to Preqin survey data, in 2012, approximately two-thirds of investors in private equity funds were actively seeking or considering the right to co-invest. The growing appetite for direct investments is spread across all types of institutional investors, often at the expense of capital allocations toward traditional private equity funds. Our paper is a first large-sample study of direct private equity investments by institutional investors. The analysis uses a proprietary dataset of all such investments by seven large institutional investors over twenty years. Despite the substantial fee discounts, we find little evidence of attractive relative performance by direct investments. In particular, co-investments underperform traditional fund investments. Overall, our evidence shows that institutional investors may find it difficult to capture the rents earned by private equity managers by investing directly. This result reinforces the role of traditional private equity funds as a financial intermediary.