Are Lower Private Equity Returns the New Normal?

U.S. private equity fundraising had its best year ever in 2015 -- raising $185 billion. But is the enthusiasm of investors warranted? Do PE buyout funds deliver outsized returns to investors and will they do so in the future? This report answers this question by reviewing the most recent empirical evidence on buyout fund performance; the answer is no. While median private equity buyout funds once beat the S&P 500, they have not done so since 2006 -- despite industry claims to the contrary

The Case for Trills: Giving the People and Their Pension Funds a Stake in the Wealth of the Nation

We make the case for the U.S. government to issue a new security with a coupon tied to the United States’ current dollar GDP. This security might pay, for example, a coupon of one-trillionth of the GDP, and we propose the name "Trill" be used to refer to this new security. This new debt instrument should be of great interest to the Government for its stabilizing influence on the budget (as coupon payments fall in a recession with declining tax revenues) and for its yield, based on our valuation. Standard asset pricing analysis also suggests that Trills would enable important new portfolio diversification strategies and, in contrast to available assets that protect relative standards of living in retirement, Trills would have virtually no counterparty risk. We believe there would be a lively appetite for the Trill from institutional investors, public and private pension funds, as well as the individual investor.GDP-linked bonds, Aggregate risk, Income risk, Inflation-indexed bonds, MacroShares, U.S. Treasury, Treasury Inflation Protection Securities (TIPS), Intergenerational risk sharing, International risk sharing, Hedging, Portfolio diversification, Market portfolio

The Case for Trills: Giving Canadians and their Pension Funds a Stake in the Wealth of the Nation

This study proposes that the Government of Canada issue a new debt security, the “Trill,” which would essentially offer Canadian investors an equity stake in the Canadian economy. The Trill is so-named because its coupon payment would be one-trillionth of Canada’s GDP. Similar to shares issued by corporations paying a fraction of corporate earnings in dividends, the Trill would pay a fraction of the “earnings” of Canada. Coupon payments would rise and fall with the GDP.pension papers, governance and public institutions

Update: Are Lower Private Equity Returns the New Normal?

This report updates a version released in June 2016.U.S. private equity fundraising had its best year ever in 2015 -- raising $185 billion. But is the enthusiasm of investors warranted? Do PE buyout funds deliver outsized returns to investors and will they do so in the future? This report answers this question by reviewing the most recent empirical evidence on buyout fund performance; the answer is no. While median private equity buyout funds once beat the S&P 500, they have not done so since 2006 -- despite industry claims to the contrary

Risk Assessment for National Natural Resource Conservation Programs

This paper reviews the risk assessments prepared by the U.S. Department of Agriculture (USDA) in support of regulations implementing the Conservation Reserve Program (CRP) and Environmental Quality Incentives Program (EQIP). These two natural resource conservation programs were authorized as part of the 1996 Farm Bill. The risk assessments were required under the Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994. The framework used for the assessments was appropriate, but the assessments could be improved in the areas of assessments endpoint selection, definition, and estimation. Many of the assessment endpoints were too diffuse or ill-defined to provide an adequate characterization of the program benefits. Two reasons for this lack of clarity were apparent: 1) the large, unprioritized set of natural resource conservation objectives for the two programs and 2) there is little agreement about what changes in environmental attributes caused by agriculture should be considered adverse and which may be considered negligible. There is also some "double counting" of program benefits. Although the CRP and EQIP are, in part, intended to assist agricultural producers with regulatory compliance, the resultant environmental benefits would occur absent the programs. The paper concludes with a set of recommendations for continuing efforts to conduct regulatory analyses of these major conservation programs. The central recommendation is that future risk assessments go beyond efforts to identify the natural resources at greatest risk due to agricultural production activities and instead provide scientific input for analyses of the cost-effectiveness of the conservation programs.

Private Provision of Highways: Economic Issues

This paper reviews issues raised by the use of private firms to finance, build, and/or operate highways — issues including cost of capital, level and structure of tolls, and adaptability to unforeseen changes. The public sector’s apparent advantage in cost of capital is at least partly illusory due to differences in tax liability and to constraints on the supply of public capital. The evidence for lower costs of construction or operation by private firms is slim. Private firms are likely to promote more efficient pricing. Effective private road provision depends on well-structured franchise agreements that allow pricing flexibility, restrain market power, enforce a sound debt structure, promote transparency, and foster other social goals.Privatization; Road finance; Toll road; Road pricing

Participation of unemployment benefit recipients in active labor market programs : before and after the German labor market reforms

"Between 2005 and 2007 the German government raised a per-capita amount of around 10.000 Euros for each transition out of unemployment benefit receipt into basic social care, to be paid by the unemployment insurance. The so called 'Aussteuerungsbetrag' set strong incentives that investments in active labor market programs for unemployment benefit recipients should pay off - in terms of an exit from registered unemployment - before a transition into basic social care for needy jobseekers occurred. This raised considerable public concerns that less programs would be granted, in particular for hard-to-place workers. Our paper analyzes if these concerns were justified. We compare four cohorts, eligible for unemployment benefits at the beginning of their unemployment spell during March of the years 2003 to 2006. We conduct some descriptive analyses and estimate piecewise constant exponential hazard models to investigate the correlation between individual characteristics and transition rates into programs. The results show that transition rates into programs were in fact low across the 2005 cohort, but rather high for the 2006 cohort. The expectation that particular disadvantaged groups of unemployed would participate less in active labor market programs in the postreform period is not confirmed; their transition rates into programs were significantly higher across the 2006 cohort than in pre-reform cohorts." (Author's abstract, IAB-Doku) ((en))arbeitsmarktpolitische Maßnahme - Zu- und Abgänge, Hartz-Reform - Erfolgskontrolle, Aussteuerungsbetrag - Auswirkungen, Teilnehmerstruktur, Arbeitslose, schwervermittelbare Arbeitslose

The unexpected global financial crisis : researching its root cause

The world is currently still struggling with the aftermath of the worst economic crisis since the Great Depression. Following a description of the eruption, evolution and consequences of the global crisis, this paper reviews alternative hypotheses for the causes of the global financial crisis as well as their empirical evidence. The paper refutes the frequently voiced view that the global crisis was caused by global imbalances that reflected economic policies of East Asian countries. Instead, it argues that global imbalances were the result of excess demand in the United States, resulting from both the public debt in the United States arising from the Afghanistan and Iraqi wars and tax cuts and the overconsumption by households supported by the wealth effect from the housing bubble in the United States. The housing bubble itself was the outcome of the Federal Reserve's low interest rate policy in the aftermath of the burst of the"dot-com"bubble in 2001, the lack of appropriate financial regulation, and housing policies aimed at expanding the mortgage market to low-income borrowers. It was possible to maintain the large trade deficits of the United States for such a long period of time because of the dollar's reserve currency status. When the housing bubble in the United States burst, the global crisis ensued. The paper also analyzes why China's trade surplus increased significantly in general and with the United States in particular in recent years, and argues that this increase was caused by both the relocation of the labor-intensive tradable sector of East Asian economies to China and high corporate saving rates in China as a result of its dual-track approach to reform.Debt Markets,Currencies and Exchange Rates,Emerging Markets,Economic Theory&Research,Access to Finance

Social health insurance systems in European countries: the role of the insurer in the health care system: a comparative study of four European countries

This paper examines the role of social health insurance in four European countries: Germany, Switzerland, France and the Netherlands. It attempts to elucidate the organisational structure, regulation and management of the social insurance schemes, as well as the relationships between the insurers, providers and consumers in the various countries with the aim of uncovering some of the inherent strengths, weaknesses and tradeoffs hich exist within social insurance systems.health care systems, Europe, insurance

Heeding Daedalus: Optimal inflation and the zero lower bound

This paper reexamines the implications of the zero lower bound on interest rates for monetary policy and the optimal choice of steady-state inflation in light of the experience of the recent global recession. There are two main findings. First, the zero lower bound did not materially contribute to the sharp declines in output in the United States and many other economies through the end of 2008, but it is a significant factor slowing recovery. Model simulations imply that an additional 4 percentage points of rate cuts would have kept the unemployment rate from rising as much as it has and would bring the unemployment and inflation rates more quickly to steady-state values, but the zero bound precludes these actions. This inability to lower interest rates comes at the cost of $1.7 trillion of foregone output over four years. Second, if recent events are a harbinger of a significantly more adverse macroeconomic climate than experienced over the preceding two decades, then a 2 percent steady-state inflation rate may provide an inadequate buffer to keep the zero bound from having noticeable deleterious effects on the macroeconomy assuming the central bank follows the standard Taylor Rule. In such an adverse environment, stronger systematic countercyclical fiscal policy and/or alternative monetary policy strategies can mitigate the harmful effects of the zero bound with a 2 percent inflation target. However, even with such policies, an inflation target of 1 percent or lower could entail significant costs in terms of macroeconomic volatility.Monetary policy ; Fiscal policy ; Liquidity (Economics)