Luis M. Viceira

George E. Bates Professor
Senior Associate Dean for International Development

Luis M. Viceira is the George E. Bates Professor at the Harvard Business School, where he teaches in the areas of investment management and capital markets to both graduate students and practitioners. He is currently the Course Head of the Finance I course in the MBA Program, Co-Chair of the CFA Institute Investment Management Program at Harvard Business School, and Co-Chair of the Business Economics Ph.D. Program at Harvard University. He holds a bachelor degree from the Universidad Autonoma in Madrid, and a M.A. degree and a Ph.D. degree from Harvard University. Professor Viceira has been a member of the faculty of the Harvard Business School since 1998.

Prof. Viceira's research studies the design of asset allocation strategies for long-term investors, both individuals and institutions, the management and organization of large institutional investors, including pension funds, endowments, and large asset managers such as mutual fund companies or wealth management groups, and innvoation in the money management industry. He is the author of multiple articles published in leading academic and practitioner-oriented finance journals, book chapters, Harvard Business School case studies, and the book "Strategic Asset Allocation" (with J. Y. Campbell). His research has received several awards recognizing its contributions to the theory and practice of asset management, including the TIAA-CREF Paul Samuelson Award, the 2005 Graham and Dodd Award by the CFA Institute, and the 2004 Prize for Financial Innovation of the Q-Group, Inquire Europe, and Inquire U.K. He has also served as judge for the TIAA-CREF Paul Samuelson Award, and as a member of the program committee of the Annual Meeting of the American Finance Association, the Western Finance Association, the European Finance Association, and the European Financial Management Association, among others.

Professor Viceira is a past director of the European Finance Association, a Research Associate at the National Bureau of Economic Research (NBER), a Research Fellow of the TIAA-CREF Institute, and Research Fellow and member of the Scientific Board of NETSPAR, the European Network for Studies on Pensions, Aging and Retirement.

Professor Viceira serves as an external consultant, advisor, and director to asset management firms, pension funds, sovereign wealth funds, central banks, international organizations, insurance companies, and not-for-profit organizations. He is also a Governor of the Financial Industry Regulatory Authority (FINRA) and a Trustee of the Financial Accounting Foundation (FAF). FINRA is the independent, private sector organization dedicated to investor protection and market integrity through effective and eficient regulation of the securities industry. The FAF is the independent, private-sector organization responsible for the oversight of the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB).

Working Papers

  1. Monetary Policy Drivers of Bond and Equity Risks

    The exposure of U.S. Treasury bonds to the stock market has moved considerably over time. While it was slightly positive on average in the period 1960–2011, it was unusually high in the 1980s and negative in the 2000s, a period during which Treasury bonds enabled investors to hedge macroeconomic risks. This paper explores the effects of monetary policy parameters and macroeconomic shocks on nominal bond risks, using a New Keynesian model with habit formation and discrete regime shifts in 1979 and 1997. The increase in bond risks after 1979 is attributed primarily to a shift in monetary policy towards a more anti-inflationary stance, while the more recent decrease in bond risks after 1997 is attributed primarily to a renewed emphasis on output stabilization and an increase in the persistence of monetary policy. Endogenous responses of bond risk premia amplify these effects of monetary policy on bond risks.

    Keywords: Risk and Uncertainty; Bonds; Central Banking; System Shocks; Policy; Macroeconomics;

    Citation:

    Campbell, John Y., Carolin E. Pflueger, and Luis M. Viceira. "Monetary Policy Drivers of Bond and Equity Risks." Harvard Business School Working Paper, No. 14-031, September 2013. (Revised April 2014.) View Details
  2. Return Predictability in the Treasury Market: Real Rates, Inflation, and Liquidity

    Estimating the liquidity differential between inflation-indexed and nominal bond yields, we separately test for time-varying real rate risk premia, inflation risk premia, and liquidity premia in U.S. and U.K. bond markets. We find strong, model independent evidence that real rate risk premia and inflation risk premia contribute to nominal bond excess return predictability to quantitatively similar degrees. The estimated liquidity premium between U.S. inflation-indexed and nominal yields is systematic, ranges from 30 bps in 2005 to over 150 bps during 2008-2009, and contributes to return predictability in inflation-indexed bonds. We find no evidence that bond supply shocks generate return predictability.

    Keywords: Expectations Hypothesis; term structure; Real interest rate risk; Inflation risk; Inflation-Indexed Bonds; Financial Crisis; Inflation and Deflation; Financial Liquidity; Bonds; Investment Return; Risk and Uncertainty; United Kingdom; United States;

    Citation:

    Pflueger, Carolin E., and Luis M. Viceira. "Return Predictability in the Treasury Market: Real Rates, Inflation, and Liquidity." Harvard Business School Working Paper, No. 11-094, March 2011. (Revised September 2013.) View Details
  3. Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds

    The covariance between U.S. Treasury bond returns and stock returns has moved considerably over time. While it was slightly positive on average in the period 1953–2009, it was unusually high in the early 1980s and negative in the 2000s, particularly in the downturns of 2000–2002 and 2007–2009. This paper specifies and estimates a model in which the nominal term structure of interest rates is driven by four state variables: the real interest rate, temporary and permanent components of expected inflation, the "nominal-real covariance" of inflation, and the real interest rate with the real economy. The last of these state variables enables the model to fit the changing covariance of bond and stock returns. Log bond yields and term premia are quadratic in these state variables, with term premia determined by the nominal-real covariance. The concavity of the yield curve―the level of intermediate-term bond yields, relative to the average of short- and long-term bond yields―is a good proxy for the level of term premia. The nominal-real covariance has declined since the early 1980s, driving down term premia.

    Keywords: Inflation and Deflation; Bonds; Interest Rates; Investment Return; Risk Management; United States;

    Citation:

    Campbell, John Y., Adi Sunderam, and Luis M. Viceira. "Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds." Harvard Business School Working Paper, No. 09-088, January 2009. (Revised January 2013.) View Details
  4. Do Executive Stock Options Encourage Risk-Taking?

    Executive stock options create incentives for executives to manage firms in ways that maximize firm market value. Since options increase in value with the volatility of the underlying stock, executive stock options provide managers with incentives to take actions that increase firm risk. We find that executives respond to these incentives. There is a statistically significant relationship between increases in option holdings by executives and subsequent increases in firm risk. This relationship is robust to the inclusion of fixed effects, year effects, and a variety of other controls and does not seem to be driven by reverse causality. However, the estimated effect on risk-taking is small and we do not find a negative (or positive) market response to option-induced risk-taking. In sum, although options appear to increase firm risk, there is no evidence that this effect is either large or damaging to shareholders.

    Keywords: Risk and Uncertainty; Motivation and Incentives; Stock Options; Executive Compensation;

    Citation:

    Cohen, Randolph B., Brian J. Hall, and Luis M. Viceira. "Do Executive Stock Options Encourage Risk-Taking?" 2000. View Details

Journal Articles

  1. The Excess Burden of Government Indecision

    Governments are known for procrastinating when it comes to resolving painful policy problems. Whatever the political motives for waiting to decide, procrastination distorts economic decisions relative to what would arise with early policy resolution. In so doing, it engenders excess burden. This paper posits, calibrates, and simulates a life cycle model with earnings, lifespan, investment return, and future policy uncertainty. It then measures the excess burden from delayed resolution of policy uncertainty. The first uncertain policy we consider concerns the level of future Social Security benefits. Specifically, we examine how an agent would respond to learning in advance whether she will experience a major Social Security benefit cut starting at age 65. We show that having to wait to learn materially affects consumption, saving, labor supply, and portfolio decisions. It also reduces welfare. Indeed, we show that the excess burden of government indecision can, in this instance, range as high as 0.6 percent of the agent's economic resources. This is a significant distortion in of itself. It's also significant when compared to other distortions measured in the literature. The second uncertain policy we consider concerns marginal tax rates. We obtain similar results once we adjust for the impact of tax rates on income.

    Keywords: Saving; Risk and Uncertainty; Investment Portfolio; Decision Choices and Conditions; Retirement; Policy; Government and Politics;

    Citation:

    Gomes, Francisco J., Laurence J. Kotlikoff, and Luis M. Viceira. "The Excess Burden of Government Indecision." Tax Policy and the Economy 26 (2012): 125–163. View Details
  2. Bond Risk, Bond Return Volatility, and the Term Structure of Interest Rates

    This paper explores time variation in bond risk, as measured by the covariation of bond returns with stock returns and with consumption growth, and in the volatility of bond returns. A robust stylized fact in empirical finance is that the spread between the yield on long-term bonds and short-term bonds forecasts positively future excess returns on bonds at varying horizons, and that the short-term nominal interest rate forecasts positively stock return volatility and exchange rate volatility. This paper presents evidence that movements in both the short-term nominal interest rate and the yield spread are positively related to changes in subsequent realized bond risk and bond return volatility. The yield spread appears to proxy for business conditions, while the short rate appears to proxy for inflation and economic uncertainty. A decomposition of bond betas into a real cash flow risk component and a discount rate risk component shows that yield spreads have offsetting effects in each component. A widening yield spread is correlated with reduced cash-flow (or inflationary) risk for bonds, but it is also correlated with larger discount rate risk for bonds. The short rate forecasts only the discount rate component of bond beta.

    Keywords: Bonds; Volatility; Forecasting and Prediction; Interest Rates; Inflation and Deflation; Investment Return; Risk and Uncertainty; Currency Exchange Rate; Cash Flow; Stocks;

    Citation:

    Viceira, Luis M. "Bond Risk, Bond Return Volatility, and the Term Structure of Interest Rates." International Journal of Forecasting 28, no. 1 (January–March 2012): 97–117. View Details
  3. Inflation-Indexed Bonds and the Expectations Hypothesis

    This paper empirically analyzes the Expectations Hypothesis (EH) in inflation-indexed (or real) bonds and in nominal bonds in the U.S. and in the U.K. We strongly reject the EH in inflation-indexed bonds and also confirm and update the existing evidence rejecting the EH in nominal bonds. This rejection implies that the risk premium on both real and nominal bonds varies predictably over time. We also find strong evidence that the spread between the nominal and the real bond risk premium, or the breakeven inflation risk premium, also varies over time. We argue that the time variation in real bond risk premia most likely reflects both a changing real interest rate risk premium and a changing liquidity risk premium, and that the variability in the nominal bond risk premia reflects a changing inflation risk premium. We estimate significant time series variability in the magnitude and sign of bond risk premia.

    Keywords: Risk Management; Bonds; Financial Liquidity; Inflation and Deflation; United Kingdom; United States;

    Citation:

    Pflueger, Carolin E., and Luis M. Viceira. "Inflation-Indexed Bonds and the Expectations Hypothesis." Annual Review of Financial Economics 3 (December 2011): 139–158. View Details
  4. Optimal Value and Growth Tilts in Long-Horizon Portfolios

    We develop an analytical solution to the dynamic portfolio choice problem of an investor with power utility defined over wealth at a finite horizon, who faces a time-varying investment opportunity set, parameterized using a flexible vector autoregression. We apply this framework to study the horizon effects in the allocations of equity-only investors, who hold a mix of value and growth indices, and a more general investor, who also has access to Treasury bills and bonds. We find that the mean allocation of equity-only investors is heavily tilted towards value stocks at short horizons, but the magnitude of this tilt declines dramatically with the investment horizon, implying that growth is less risky than value at long horizons. Investors with access to bills and bonds exhibit similar behavior when value and growth tilts are computed relative to the total equity allocation of the portfolio. However, after accounting for the propensity of these investors to increase their total equity allocation as the horizon increases, the mean value tilt of the optimal allocation is shown to be positive and stable across time.

    Keywords: Decision Choices and Conditions; Private Equity; Investment; Investment Portfolio; Resource Allocation; Value;

    Citation:

    Jurek, Jakub W., and Luis M. Viceira. "Optimal Value and Growth Tilts in Long-Horizon Portfolios." Review of Finance 15, no. 1 (2011). View Details
  5. Global Currency Hedging

    Over the period 1975 to 2005, the US dollar (particularly in relation to the Canadian dollar) and the euro and Swiss franc (particularly in the second half of the period) have moved against world equity markets. Thus these currencies should be attractive to risk-minimizing global equity investors despite their low average returns. The risk-minimizing currency strategy for a global bond investor is close to a full currency hedge, with a modest long position in the US dollar. There is little evidence that risk-minimizing investors should adjust their currency positions in response to movements in interest differentials.

    Keywords: Currency; Equity; Financial Markets; International Finance; Investment Return; Globalized Markets and Industries; Risk Management;

    Citation:

    Campbell, John Y., Karine Serfaty-de Medeiros, and Luis M. Viceira. "Global Currency Hedging." Journal of Finance 65, no. 1 (February 2010): 87–121. View Details
  6. Optimal Life-Cycle Investing with Flexible Labor Supply: A Welfare Analysis of Life-Cycle Funds

    Keywords: Investment; Labor; Theory; Investment Funds;

    Citation:

    Gomes, Francisco J., Laurence J. Kotlikoff, and Luis M. Viceira. "Optimal Life-Cycle Investing with Flexible Labor Supply: A Welfare Analysis of Life-Cycle Funds." American Economic Review: Papers and Proceedings 98 (May 2008): 297–303. View Details
  7. The Term Structure of the Risk-Return Tradeoff

    Keywords: Risk and Uncertainty; Profit;

    Citation:

    Campbell, John Y., and Luis M. Viceira. "The Term Structure of the Risk-Return Tradeoff." Financial Analysts Journal 61, no. 1 (January/February 2005). (Awarded the the Graham and Dodd Award for Excellence in Financial Writing from the Financial Analysts Journal and the CFA Institute.) View Details
  8. Strategic Asset Allocation in a Continuous-time VAR Model

    Keywords: Assets; Resource Allocation; Strategy;

    Citation:

    Campbell, John Y., George Chacko, Jorge Rodriguez, and Luis M. Viceira. "Strategic Asset Allocation in a Continuous-time VAR Model." Journal of Economic Dynamics & Control 28, no. 11 (October 2004): 2195–2214. View Details
  9. A Multivariate Model of Strategic Asset Allocation

    Keywords: Assets; Resource Allocation;

    Citation:

    Viceira, Luis M., John Y. Campbell, and Y. Lewis Chan. "A Multivariate Model of Strategic Asset Allocation." Journal of Financial Economics 67, no. 1 (January 2003): 41–80. (Click here for Appendix. Winner of the second 2003 Fama/DFA Prize for Capital Markets and Asset Pricing.) View Details
  10. Stock Market Mean Reversion and the Optimal Equity Allocation of a Long-Lived Investor

    Keywords: Stocks; Markets; Price; Assets; Equity; Investment;

    Citation:

    Viceira, Luis M., John Y. Campbell, Francisco Gomes, and Pascal J. Maenhout. "Stock Market Mean Reversion and the Optimal Equity Allocation of a Long-Lived Investor." European Finance Review 5, no. 3 (January 2001). View Details
  11. Consumption and Portfolio Decisions When Expected Returns Are Time Varying

    Citation:

    Viceira, Luis M., and John Y. Campbell. "Consumption and Portfolio Decisions When Expected Returns Are Time Varying." Quarterly Journal of Economics 114 (May 1999): 433–495. (This note, "Consumption and Portfolio Decisions When Expected Returns Are Time Varying: Erratum," corrects an error in the May 1999 paper.) View Details

Books

  1. Strategic Asset Allocation: Portfolio Choice for Long-Term Investors

    Keywords: Investment Portfolio;

    Citation:

    Viceira, Luis M., and John Y. Campbell. Strategic Asset Allocation: Portfolio Choice for Long-Term Investors. Oxford University Press, 2002. (Winner of TIAA-CREF Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security presented by TIAA-CREF Institute.) View Details

Book Chapters

  1. The Euro as a Reserve Currency for Global Investors

    This article explores the demand for the euro for risk management purposes and the evidence of stock market integration in the euro area. We define a reserve currency as one that investors demand either because it helps them hedge real interest risk and inflation risk, or because it helps them reduce the volatility of their portfolio of stocks and bonds because its return is negatively correlated with the returns on those assets. This article re-examines the role of the euro as a reserve currency in the sense of Campbell, Viceira, and White (2003), updating their evidence, and reviews the evidence of Campbell, Serfaty-de Medeiros, and Viceira (2010) in detail. Consistent with the intuition that an integrated capital market is one in which there is a common discount factor pricing securities, we also investigate whether stocks in the euro area have moved from a regime in which national stock markets were priced with discount rates that were predominantly country specific, to a regime in which national stock markets are predominantly priced by a euro area-wide common discount rate. We adopt the beta decomposition approach of Campbell and Vuolteenaho (2004) and Campbell, Polk, and Vuolteenaho (2010) to test for capital market integration and find robust evidence of increased capital market integration in the euro zone and, consequently, improved risk sharing among euro zone economies.

    Keywords: Volatility; Inflation and Deflation; Capital Markets; Currency; Stocks; Financial Markets; Financing and Loans; Investment Return; Investment Portfolio; Risk Management;

    Citation:

    Viceira, Luis M., and Ricardo Gimeno. "The Euro as a Reserve Currency for Global Investors." Chap. 4 in Spain and the Euro. The First Ten Years, 149–178. Madrid, Spain: Banco de España, 2010. View Details
  2. Life-Cycle Funds

    The U.S. retirement system has experienced a substantial transformation in recent years. It has evolved from a system in which employees relied mainly on Social Security and professionally managed defined benefit (DB) pension plans sponsored by their employers to provide for their retirement to a system in which employees must rely on their own saving and investment decisions to fund their own retirement. Defined contribution (DC) plan participants and IRA holders decide how much to contribute (up to a legally established maximum limit) to their plan, and how to invest their contributions and the contributions that their employer might make on their behalf. Thus the benefits they get at retirement depend on their own accumulation and investment decisions. DC plan sponsors are only responsible for the design of the plan and for its administration and record-keeping. Current regulations grant sponsors considerable freedom in their selection of the number and type of investment options available to participants. In practice, most plan sponsors have chosen to offer a menu of plain vanilla mutual funds plus company stock. Thus mutual funds have become the main retirement investment vehicle in the United States, and mutual fund companies the main managers of retirement assets.

    Keywords: Retirement; Personal Finance; Investment Funds; Compensation and Benefits; United States;

    Citation:

    Viceira, Luis M. "Life-Cycle Funds." Chap. 5 in Overcoming the Saving Slump: How to Increase the Effectiveness of Financial Education and Saving Programs, edited by Annamaria Lusardi. University of Chicago Press, 2008. View Details

Cases and Teaching Materials

  1. Blackstone Alternative Asset Management

    This case explores reasons for Blackstone Alternative Asset Management's (BAAM's) growth from 2007-2013, a time when the overall fund of hedge funds industry contracted substantially. Additionally, the case analyzes evolving business models and value propositions within the fund of hedge funds industry. J. Tomilson Hill, CEO of BAAM and Vice-Chairman of The Blackstone Group, is the protagonist. At the time of the case, BAAM was considering two potential directions for future growth: 1) providing hedge fund products for the defined contribution pension space, and 2) beginning direct internal "manufacturing" of investments. In the context of the current fund of hedge funds industry, the case considers challenges and opportunities for these potential new areas for growth.

    Keywords: hedge fund; fund of hedge funds; hedge fund industry growth; fund of hedge funds industry growth; evolving business models; value propositions in the fund of hege funds industry; Financial Services Industry; New York (city, NY);

    Citation:

    Greenwood, Robin, Luis M. Viceira, and Jared Dourdeville. "Blackstone Alternative Asset Management." Harvard Business School Case 213-129, June 2013. (Revised July 2013.) View Details
  2. The Private Company Council

    Financial Accounting Foundation chairman Jack Brennan is under pressure from private-company interests to set up a new body—the Private Company Council—to determine separate GAAP for private companies. PCC advocates—including the US Chamber of Commerce—argue that traditional US GAAP has too many disclosure and fair-value requirements that impose very high compliance costs on private companies. But there are influential players—including the Big Four auditors—who oppose creating the PCC. They argue that the compliance costs of traditional GAAP are the price of high-quality accounting standards. Balancing these powerful interests, Brennan must make a decision on the PCC; at stake is US GAAP's ability to facilitate capital allocation decisions in the economy.

    Keywords: FASB; leadership; lobbying; political economy; Accounting; Government and Politics; Leadership; Financial Markets; Accounting Industry; Financial Services Industry; Public Administration Industry;

    Citation:

    Ramanna, Karthik, and Luis M. Viceira. "The Private Company Council." Harvard Business School Case 113-045, January 2013. View Details
  3. Valuing Yahoo! in 2013

    In late July 2013, Danielle Engle, Managing Director of Clairemont Capital, was contemplating what to do about a large investment her fund had in the stock of Yahoo! Inc. In mid-2012, Clairemont had invested nearly $75M in Yahoo! after the tech company settled a highly visible proxy fight with prolific activist investor Daniel Loeb of hedge fund Third Point. Since that time, Loeb and his colleagues had joined the board, the company had hired a new CEO and the stock price was up nearly 80%—increasing the value of Clairemont's investment by $60M in less than a year. But Yahoo! had just announced an agreement to buy back two-thirds of Third Point's stake in the company. It had also announced that Loeb and two other company directors appointed at his request would step down from the board. At the same time, Alibaba, the giant Chinese e-commerce company of which Yahoo! owned a sizable stake, was widely expected to go public in the near future. What should Clairemont Capital do with its investment in Yahoo! in response to this news? This case provides students with opportunities to discuss shareholder activism, the interaction between a company growth strategy and business model and its valuation, discounted cash-flow valuation analysis, multiples valuation, transaction-based valuation, and company valuation by parts.

    Citation:

    Viceira, Luis M., and Atul Khosla. "Valuing Yahoo! in 2013." Harvard Business School Case 214-048, November 2013. View Details
  4. Prudential Financial - General Motors Pension Risk Transfer: Back to the Future?

    In November 2012, Prudential Financial and General Motors closed on a $25.1B pension risk transfer (PRT) transaction, the largest of its kind to date by an order of magnitude both in the U.S. market and globally. In exchange for an in-kind transfer of $25.1B in assets, Prudential Financial agreed to irrevocably guarantee the full payment of pension benefits to approximately 110,000 participants of General Motors Retirement Program for Salaried Employees and assume all risks related to investment, interest rate, and longevity as well as all operational and administrative requirements to make those payments for as long as necessary. As they gear to close another significant PRT transaction with Verizon, Dylan Tyson and Phil Waldeck, senior managers of the Pension & Structured Solutions group at Prudential, consider the strategic importance of these deals for Prudential business strategy and the potential growth of the PRT business in light of trends in interest rates and longevity, the regulatory and reporting landscape for defined-benefit pension plans, and the appetite for pension funding risk of plan sponsors.

    The case examines the pension fund industry, drivers of pension funding risk including investment risk, interest rate risk, and rising participant longevity, the regulatory and reporting landscape for pension funds, and the strategies available to pension funds to de-risk their plans. It then examines insurance companies and specifically Prudential Financial's competitive advantage in managing pension risk and implementing de-risking strategies for pension funds in the context of Prudential Financial's decision to commit resources to expand its PRT group that resulted in the pension liability buy-out deal with General Motors. Finally, the case examines the development and implementation of a PRT deal of this size and complexity, and explores the implications of such deals for the future of the asset management industry.

    Keywords: Risk Management; Asset Management; Insurance; Retirement; Financial Services Industry; Insurance Industry;

    Citation:

    Viceira, Luis M., and Emily A. Chien. "Prudential Financial - General Motors Pension Risk Transfer: Back to the Future?" Harvard Business School Case 213-126, August 2013. View Details
  5. S&P Indices and the Indexing Business in 2012

    In June 2012, Standard & Poor's Indices is finalizing a deal with the CME Group, the largest global exchange for futures and options and majority owner of Dow Jones Indexes, to combine their respective indices business into a new joint venture called S&P Dow Jones Indices. This case discusses the index provider business model through the lenses of this transaction: sources of revenue and profitability, business valuation, uses of indexes in the money management industry, types of indexes, intellectual property protection issues, and competition, marketing, and growth opportunities. The case makes special emphasis on the strategic drivers for business consolidation and combination in an environment of increased competition, trends toward self-indexation, and growth of indexing at a global scale.

    Keywords: indexing; Business Model; Joint Ventures; Financial Markets; Standards; Financial Services Industry;

    Citation:

    Viceira, Luis, and Alison Berkley Wagonfeld. "S&P Indices and the Indexing Business in 2012." Harvard Business School Case 213-049, June 2013. (Revised January 2014.) View Details
  6. Grantham, Mayo, and Van Otterloo, 2012: Estimating the Equity Risk Premium

    Keywords: investment banking; Equity Valuation; Investment Banking; Equity;

    Citation:

    Hanson, Samuel, Erik Stafford, and Luis Viceira. "Grantham, Mayo, and Van Otterloo, 2012: Estimating the Equity Risk Premium." Harvard Business School Case 213-051, October 2012. (Revised February 2013.) View Details
  7. The Long and Short of Apollo Group and the University of Phoenix (B)

    Keywords: Education; Corporate Finance;

    Citation:

    Viceira, Luis M., Joel Heilprin, Andrew S. Holmes, and Damian M. Zajac. "The Long and Short of Apollo Group and the University of Phoenix (B)." Harvard Business School Supplement 212-054, November 2011. (Revised December 2013.) View Details
  8. The Long and Short of Apollo Group and the University of Phoenix (A)

    A hedge fund is deciding whether to liquidate its position in Apollo Group, a for-profit education firm, in light of significant political and macro-economic uncertainty facing the industry. As part of the investment analysis a complete discounted cash flow analysis must be performed.

    Keywords: Higher Education; Web; Online Technology; Education Industry; Technology Industry;

    Citation:

    Viceira, Luis M., Joel Heilprin, Andrew S. Holmes, and Damian M. Zajac. "The Long and Short of Apollo Group and the University of Phoenix (A)." Harvard Business School Case 212-045, November 2011. (Revised December 2013.) View Details
  9. Shelley Capital and the Hedge Fund Secondary Market

    An advisory company has to decide how to sell their client's hedge fund holdings in the secondary market, and thinks about their future. Shelley Capital was a a European advisory company operating in the hedge fund secondary market, a market that boosted in 2008 with the world financial crisis. Shelley had identified four final bidders for the $84.5 million portfolio of illiquid hedge fund holdings that one of their clients had commissioned them to sell and had now to decide to whom they should sell the holdings, if they should split up the portfolio, or if they should postpone the sale. At the same time, they needed to decide about their future business. The financial crisis was behind the exceptional growth of the hedge funds' secondary market, yet another crisis could follow and boost the secondary market again. What direction should Shelley take once the hedge fund industry fully recovered? But what if a second global crisis threw the hedge fund industry into disarray once again?

    Keywords: Insolvency and Bankruptcy; Investment Funds; Marketing Strategy; Financial Crisis; Sales; Leadership Development; Financial Markets; Crisis Management; Business Processes; Risk and Uncertainty; Globalized Economies and Regions; Financial Services Industry; Service Industry; Europe;

    Citation:

    Viceira, Luis, Elena Corsi, and Ruth Dittrich. "Shelley Capital and the Hedge Fund Secondary Market." Harvard Business School Case 211-112, June 2011. View Details
  10. MacroMarkets LLC

    MacroMarkets co-founder and CEO Samuel Masucci III is meeting with a strategic partner for his firm. Co-founded with Yale University Professor Robert Shiller, MacroMarkets' main innovation is the "MacroShare," which allows investors to take long or short, levered or unlevered, positions based on the value of any index. Both Shiller and Masucci are hopeful that MacroShares can help investors hedge all kinds of macroeconomic risks, including exposure to residential housing. The firm has ”battle-tested” two products—one linked to oil, and one linked to housing—with mixed success and is evaluating its strategy going forward. Specifically, Masucci wonders whether the MacroShare structure might come to replace the ETF as the predominant technology for index trading.

    Keywords: Macroeconomics; Financial Instruments; Financial Markets; Investment Funds; Investment Portfolio; Innovation and Invention; Risk Management; Product Positioning; Demand and Consumers; Financial Services Industry;

    Citation:

    Greenwood, Robin, and Luis M. Viceira. "MacroMarkets LLC." Harvard Business School Case 211-006, July 2010. (Revised January 2011.) View Details
  11. Windward Investment Management

    Windward Investment Management has experienced rapid growth in assets under management in just ten years, from under $30 million at year-end 1999 to $3.6 billion in 2010. Windward is one of the leading firms in the Registered Investment Advisor (RIA) industry that seeks value for its investors through asset diversification and active macro-level investing. The firm implements its proprietary investment model by trading exclusively exchange-traded funds (ETF). Windward is considering a range of future growth opportunities and how to finance those opportunities, including raising external capital. The case focuses on the decision of what opportunities Windward should consider and on the valuation of the firm if it decides to raise external capital.

    Keywords: Asset Management; Valuation; Investment; Growth and Development Strategy; Financial Services Industry;

    Citation:

    Viceira, Luis M., and Ricardo Alberto De Armas. "Windward Investment Management." Harvard Business School Case 211-005, September 2010. (Revised May 2012.) View Details
  12. The Investment Fund for Foundations (TIFF) in 2009

    In late June 2009, management at The Investment Fund for Foundations (TIFF) was considering expanding the footprint of the TIFF Diversified Fund (TDF), the first truly comprehensive endowment management vehicle offered under the TIFF banner. The recent large capital losses suffered by most endowments, including those of Harvard and Yale, had motivated some to question the two basic premises of the endowment investment model—that investors get rewarded for bearing illiquidity, and that a diversified blend of asset classes and strategies provides meaningful protection against capital losses under virtually all market conditions. Despite this questioning, the investment professionals at TIFF were convinced that this model remained viable as a means of generating superior long-term returns, and that TDF was a vehicle that provided TIFF's current and potential clients access to this model. But they were aware that they would need to increase their efforts to educate their clients on the benefits of this comprehensive approach to investing and also reflect on whether to modify the current structure of TDF, particularly regarding its liquidity provisions.

    Keywords: Financial Crisis; Asset Management; Financial Strategy; Investment Funds; Risk Management; Product Marketing; Financial Services Industry; United States;

    Citation:

    Viceira, Luis M., and Brendon Christopher Parry. "The Investment Fund for Foundations (TIFF) in 2009." Harvard Business School Case 210-008, December 2009. (Revised February 2010.) View Details
  13. Martingale Asset Management LP in 2008, 130/30 Funds, and a Low-Volatility Strategy

    In early July of 2008, William (Bill) Jacques, Chief Investment Officer at Martingale Asset Management, a quantitative value-oriented investment manager in Boston, Massachusetts, was busy preparing for an upcoming meeting with the group that made new product decisions within the firm. The objective of the meeting was to review the backtesting and real-time investment results of a new minimum-variance strategy within the framework of a 130/30 fund. The performance results were very encouraging, but Bill still wondered if they were a fluke of the data, a result of data mining rather than the reflection of a true market anomaly. He wanted to discuss several possible explanations of the phenomenon and to decide whether Martingale should offer the strategy to its clients.

    Keywords: Volatility; Asset Management; Stocks; Financial Strategy; Investment Funds; Product Development;

    Citation:

    Viceira, Luis M., and Helen Tung. "Martingale Asset Management LP in 2008, 130/30 Funds, and a Low-Volatility Strategy." Harvard Business School Case 209-047, August 2008. (Revised June 2012.) View Details
  14. The Vanguard Group, Inc. in 2006 and Target Retirement Funds

    The Vanguard Group is one of the largest asset managers in the U.S., with over $1 trillion in assets, ninety percent of which are mutual fund assets, and more than 12,000 employees at year-end 2006. Vanguard has built a strong reputation as the manager of reference for low-cost investing and high-quality customer service which always does what it thinks is best for its clients. Vanguard has recently launched a family of life-cycle funds called Target Retirement Funds. Life-cycle funds, which have proven popular both with investors in company-sponsored defined-contribution pension plans and with individual investors, are built on the idea of “age-based investing,” or the notion that investors should allocate more of their long-term savings to stocks when they are young and have longer retirement horizons, and decrease this allocation as they approach retirement. The management at Vanguard is examining the central role of these funds may play in some initiatives aimed at growing Vanguard's retail, defined contribution and client advisory services. The pending approval of the Pension Protection Act will make it possible for sponsors of defined-contribution plans to take a more active role in advising plan participants, and the assets in individual retirement accounts and defined-contribution pension plans are expected to continue their rapid growth moving forward. Should Vanguard promote these funds as the next step in Vanguard's quest to make investing as simple, low-cost, and effective as it can possibly be? At stake is Vanguard's brand and client trust, and the welfare of millions of Americans now responsible for providing for their own retirement.

    Keywords: Asset Management; Investment Funds; Personal Finance; Brands and Branding; Retirement; Trust; Financial Services Industry; United States;

    Citation:

    Viceira, Luis M. "The Vanguard Group, Inc. in 2006 and Target Retirement Funds." Harvard Business School Case 207-129, June 2007. (Revised January 2008.) View Details
  15. The U.S. Retirement Savings Market and the Pension Protection Act of 2006

    Provides an overview of the evolution of the private retirement savings market in the U.S. since 1990; the management and administration of defined-contribution (DC) plans; the existing evidence about the investment and savings decisions of participants in DC plans; and the Pension Protection Act of 2006.

    Keywords: Investment; Personal Finance; Saving; Government Legislation; Retirement; Business and Government Relations; Financial Services Industry; United States;

    Citation:

    Viceira, Luis M., and Helen Tung. "The U.S. Retirement Savings Market and the Pension Protection Act of 2006." Harvard Business School Background Note 207-130, June 2007. (Revised January 2008.) View Details
  16. Barclays Global Investors and Exchange Traded Funds

    Provides an overview of the Exchange Traded Funds (EFT) industry and highlights the leadership role that Barclays Global Investors (BGI) has played in this developing asset class. BGI launched its first ETFs under the iShares brand name in 2000, and by mid-2007 BGI was the global leader in the $600 billion ETF market. BGI's success had started attracting the interest of other large asset management firms, and Lee Kranefuss, CEO of BGI's iShares business was thinking about how BGI should compete in the increasingly crowded market. Should BGI expand into Europe and Asia more aggressively? Should BGI, already a large manager of 401(k) assets for corporations, pursue the 401(k) market with its iShares products? Would BGI need to cut its fees as other competitors such as Vanguard started marketing its "low-cost" ETF products?

    Keywords: History; Venture Capital; Asset Management; Stocks; Investment Funds; Leading Change; Expansion; Competitive Strategy; Capital Markets; Global Strategy; Financial Strategy; Banking Industry; Financial Services Industry; Asia; Europe;

    Citation:

    Viceira, Luis M., and Alison Berkley Wagonfeld. "Barclays Global Investors and Exchange Traded Funds." Harvard Business School Case 208-033, October 2007. (Revised November 2007.) View Details
  17. Harvard Management Company and Inflation-Protected Bonds, The

    In March 2000, the board of The Harvard Management Co. (HMC) approved significant changes in the policy portfolio determining the long-run allocation policy of the Harvard University endowment. These changes included a sharp reduction of the allocation to U.S. equities and U.S. nominal bonds and a significant investment in the new U.S. Treasury Inflation-Protected Securities (TIPS). This case focuses on the analysis that led HMC management to recommend such changes to the board.

    Keywords: Bonds; Investment Portfolio; Investment Funds; Asset Management; Corporate Governance; Capital Markets; Financial Services Industry; United States;

    Citation:

    Viceira, Luis M. "Harvard Management Company and Inflation-Protected Bonds, The." Harvard Business School Case 201-053, October 2000. (Revised February 2007.) View Details
  18. Asset Allocation: A Half-Course Module Note

    Provides an overview of the main ideas and structure of a 15-session module on long-term asset allocation designed for MBA graduate students and investment professionals. This module is taught as part of a full-length, 30-session elective class on investment management at the Harvard Business School. This module can also be taught as a stand-alone 15-session course on asset allocation. The module is structured around a discussion of three interactive sessions and nine Harvard Business School cases, all of which have companion teaching notes. The module starts with traditional mean-variance analysis and it develops the main ideas underlying the modern theory of long-term investing. Also, emphasizes the practical implementation of investment decisions and the management of long-term institutional investors and investment vehicles.

    Keywords: Asset Management; Investment; Decisions; Management; Management Analysis, Tools, and Techniques; Teaching; Theory;

    Citation:

    Viceira, Luis M. "Asset Allocation: A Half-Course Module Note." Harvard Business School Module Note 206-133, April 2006. View Details
  19. Investment Policy at the Hewlett Foundation (2005)

    In early January 2005, Laurance Hoagland Jr., VP and CIO of the William and Flora Hewlett Foundation (HF), and his investment team met to finish their recommendations to the HF Investment Committee for a new asset allocation policy for the foundation's investment portfolio. If the proposal was approved, HF would adopt a new asset allocation policy that included a substantial reduction in the overall exposure of the investment portfolio to domestic public equities and a significant increase in the allocation to absolute return strategies and TIPS. Hoagland and this team also needed to decide on a complementary recommendation to the HF Investment Committee to pledge approximately 5% of the total value of the portfolio to Sirius V, the latest fund at Sirius Investments, which specialized in global distressed real estate investments.

    Keywords: Investment Portfolio; Risk and Uncertainty; Public Equity; Globalization; Investment; Property; Risk Management; Asset Management; Financial Services Industry;

    Citation:

    Viceira, Luis M. "Investment Policy at the Hewlett Foundation (2005)." Harvard Business School Case 205-126, June 2005. (Revised January 2006.) View Details
  20. General Motors U.S. Pension Funds

    In June 2003, General Motors Corp. (GM) successfully marketed the largest corporate debt offering in U.S. history, worth $17.6 billion. The offering included $13.6 billion worth of debt denominated in dollars, euros, and pounds and $4 billion dollars denominated in convertibles. GM announced that it would use the majority of these proceeds to shore up its heavily underfunded U.S.-defined pension plans. GM considered investing the entire contribution to its U.S. pension funds coming from the debt offering not in traditional investment grade bonds or stocks, but in a broad category GM called "alpha." GMAM believed this would help meet its new target annual return of 9%, reduce the probability of a negative return in any given year from 20% to 10%, and reduce the volatility of plan assets by 40%.

    Keywords: Decisions; Bonds; Investment Return; Policy; Borrowing and Debt; Corporate Finance; Auto Industry; United States;

    Citation:

    Viceira, Luis M., and Helen Tung. "General Motors U.S. Pension Funds." Harvard Business School Case 206-001, July 2005. (Revised December 2005.) View Details
  21. Investment Policy at New England Healthcare

    The Investment Committee of New England Healthcare must decide how to invest three long-term investment pools: a long-term, endowment-type fund and two pension plans. In particular, the committee is evaluating whether the two pension funds--one is a "final salary" pension plan, the other a "cash balance" pension plan--should have special investment considerations due to the unique characteristics of these plans' liabilities.

    Keywords: Decisions; Asset Management; Investment; Investment Portfolio; Policy; Taxation; Health Industry; England;

    Citation:

    Light, Jay O., Luis M. Viceira, and Akiko M. Mitsui. "Investment Policy at New England Healthcare." Harvard Business School Case 204-018, July 2003. (Revised December 2003.) View Details
  22. Pension Policy at The Boots Company PLC

    In early 2000, the trustees of the pension scheme at Boots considered a proposal to move 100% of the pension assets into a bond portfolio, which would be passively managed. The Boots Co. PLC was a leading retailer of cosmetics and toiletries in the United Kingdom, and the company pension scheme was one of the largest in the country, with 2.3 billion British pounds in assets. If implemented, Boots would depart significantly from its prior pension investment strategy, which had been similar to that of other large U.K. pension funds. In general, such funds used external managers for active and passive portfolios of roughly 75% equities, 17% bonds, 4% real estate, and 4% cash. This unprecedented investment policy change would more closely align pension assets and liabilities and, according to long-standing academic principles of corporate pension fund management, it might also have significant effects on Boots itself, its shareholders, and other stakeholders. In making their decision, the trustees would have to consider these effects as well as the practical feasibility of such a plan.

    Keywords: Performance Productivity; Employees; Asset Management; Capital Structure; Investment Portfolio; Consumer Products Industry; United Kingdom;

    Citation:

    Viceira, Luis M., and Akiko M. Mitsui. "Pension Policy at The Boots Company PLC." Harvard Business School Case 203-105, June 2003. (Revised August 2003.) View Details
  23. Investing in Japan

    The evolution of the macroeconomic environment, capital markets, financial institutions (including banks, public and private pension funds, and mutual funds), and financial regulation in Japan during the period 1980 to 2002, are examined long-term demographic projections for Japan are presented.

    Keywords: Capital Markets; Investment; Financial Institutions; Macroeconomics; Japan;

    Citation:

    Hecht, Peter A., and Luis M. Viceira. "Investing in Japan." Harvard Business School Case 203-036, March 2003. View Details
  24. Harmonized Savings Plan at BP Amoco, The

    On August 11, 1998, United States' Amoco Corp. (NYSE: AR) and the British Petroleum Co. (BP) p.l.c. (NYSE: BP) announced the BPC merger with Amoco. This deal was the largest industrial merger to date, and created the world's third-largest oil company, BP (NYSE: BP). This case focuses on the issues surrounding the integration of the employee-defined contribution plans at Amoco and the U.S. subsidiary of BP. One of them was that the premerger plans had very different investment structures. Whereas Amoco had offered its employees only low--cost index funds, BP America had relied on actively managed mutual funds. The new plan, which would have more than 40,000 participants and $7 billion in assets, would have to either choose one of these approaches or integrate them into one single structure.

    Keywords: Financial Strategy; Mergers and Acquisitions; Compensation and Benefits; Energy Industry; North and Central America;

    Citation:

    Viceira, Luis M. "Harmonized Savings Plan at BP Amoco, The." Harvard Business School Case 201-052, October 2000. (Revised November 2000.) View Details
  25. Dell Computer Corporation: Share Repurchase Program

    Dell Computer Corp. announced a share repurchase program shortly after a significant stock price drop. In this announcement, the company also states that it will use options contracts. This case looks at the options transactions and how they relate to Dell's employee stock option program and the share repurchase program.

    Keywords: Financial Strategy; Stock Options; Employee Stock Ownership Plan; Computer Industry;

    Citation:

    Chacko, George C., and Luis M. Viceira. "Dell Computer Corporation: Share Repurchase Program." Harvard Business School Case 200-056, March 2000. View Details

Other Publications and Materials

  1. Do Executive Stock Options Encourage Risk-Taking?

    Executive stock options create incentives for executives to manage firms in ways that maximize firm market value. Since options increase in value with the volatility of the underlying stock, executive stock options provide managers with incentives to take actions that increase firm risk. We find that executives respond to these incentives. There is a statistically significant relationship between increases in option holdings by executives and subsequent increases in firm risk. This relationship is robust to the inclusion of fixed effects, year effects, and a variety of other controls and does not seem to be driven by reverse causality. However, the estimated effect on risk-taking is small and we do not find a negative (or positive) market response to option-induced risk-taking. In sum, although options appear to increase firm risk, there is no evidence that this effect is either large or damaging to shareholders.

    Keywords: Risk and Uncertainty; Motivation and Incentives; Stock Options; Executive Compensation;

    Citation:

    Cohen, Randolph B., Brian J. Hall, and Luis M. Viceira. "Do Executive Stock Options Encourage Risk-Taking?" 2000. View Details