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All Journal Economic and Finance in Indonesia
Ronaldo, Rizky Rizaldi
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Economics, Econometrics & Finance Education

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Identifying Risk-Taking Behavior and Prudent Asset Allocation in Pension Funds in Indonesia Prabowosunu, Mohammad Alvin; Siregar, Reza Yamora; Melati, Rosi; Hadrian, Devan; Ronaldo, Rizky Rizaldi
Economics and Finance in Indonesia Vol. 70, No. 1
Publisher : UI Scholars Hub

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Abstract

This research aims to investigate asset allocation strategies in the pension fund industry in Indonesia in relation to liability profiles and risk-taking behavior. Utilizing data on market returns for each asset class and several financial indicators of pension funds, we applied the risk-taking behavior model proposed by Andonov & Rauh (2022) and a modified model to observe the Liability-Driven Investment (LDI) strategies of pension funds in Indonesia. We discovered that private defined contribution pension fund schemes (PPIP) tend to exhibit higher risk-taking behavior, primarily through investment allocation in equities. On the other hand, private defined benefit pension funds (PPMP) demonstrate a less aggressive risk-taking approach, allocating investments in bonds and cap/blue-chip stocks. PPMP also indicates relatively better implementation of the LDI strategies by considering the sensitivity of long-term bonds concerning return on investment (ROI).
Co-Authors Hadrian, Devan Melati, Rosi Prabowosunu, Mohammad Alvin Siregar, Reza Yamora