Finance Department, Haas School of Business
Adair Morse is assistant professor of finance at the Haas School of Business at the University of California, Berkeley. She is a Faculty Research Fellow, National Bureau of Economic Research (Cambridge, Massachusetts). Her research covers the areas of household finance, entrepreneurship, corruption and governance, and asset management. Recent work has been instrumental in re-directing the debate on tax reform in Greece. Her work on fraud helped to shape the bounty provisions in the Dodd Frank law of financial reform; and, her work on trickle down consumption has contributed to the debate on the financial crisis and income inequality.
Summary of recent papers:
Date: January 2017
Coauthors: Brad M. Barber (UC Davis), Ayako Yasuda (UC Davis)
Citation: Working Paper
We study investments in impact funds, which we define as venture or growth private equity with a stated intent to generate both financial returns and positive externalities. In a choice-of-funds framework covering 3,500 limited partners, 5,000 funds, and 25,000 capital commitments and controlling for general determinants of fund choice, we find a 13.5% higher investment rate for impact funds compared to the benchmark investment rate of traditional venture funds. Our results imply that the supply of impact funds is incomplete, failing to meet demand. Certain types of investors drive the effect: development organizations, foundations, banks, insurance companies, and public pension funds. This set of impact investor types encompasses those with externalities in their utility function as well as those who respond to political, regulatory or local goodwill incentives to incorporate social responsibility in investing (SRI). Further, when investors signal their demand for impact or adherence to SRI principles by being a United Nations Principles for Responsible Investment (UNPRI) signatory, the excess demand for impact funds increases to 25% higher than the baseline rate by expanding the list of impact investors to include private pensions and institutional asset managers who have SRI branding.
Coauthors: Alexander Dyck (University of Toronto, Rotman School). Paulo Manoel (UC Berkeley), Lukasz Pomorski (AQR)
Citation: Preliminary Working Paper
Boards of public pensions are prone to unique agency frictions because of their status as being in the public sector. This paper models public pension boards’ hiring and compensating of investment managers to achieve optimal portfolios for constituents. Agency conflicts manifest in board preferences over manager quality and portfolio choice, reflecting underfunding pressures, outrage constraints on paying market compensation to managers, bureaucratic incentives and board political capture. Testing the model in global data covering $5.4 trillion of assets, the paper finds that underfunding induces risking-up to hedge funds (a 37% change) and private equity (a 23% change). However, boards cannot hire more skilled managers to oversee these riskier portfolios if worker are prone to outrage (having lower incomes). Whereas underfunded boards act as if less risk averse, funds with bureaucrat trustees instead look overly conservative, taking 0.05 portfolio weight away from risky asset classes. Consistent with a story of picking discrete, politically-favored funds, political boards invest 0.017 away from vanilla equities into hedge funds and private equity, which respectively underperform by 7.4% and 1.8%. The paper ties the mechanism to a hiring of lower quality managers ($44,642 lower pay), consistent with its model that board influence over investment manager quality and compensation matters.