Professor Arun Muralidhar participated on the Second International Conference on Financial Markets, and took time out during his visit to Universidad de los Andes School of Management to tell us about how his research will affect all of us as a society.
Arun Muralidhar holds a Ph.D. in Managerial Economics (1992) from the MIT Sloan School of Management. He is Adjunct Professor of Finance at George Washington University where he has been teaching the Advance Security Analysis course since 2012. He is also the Chairman and Founder of Mcube Investment Technologies, a company focused on the creation of decision support products for investment management. He has served as an Academic Scholar Advisor to the Center for Retirement Initiatives at Georgetown University since 2015.
From 1995 to 1999, he was the Head of Research and Analytics at the World Bank, before joining J.P. Morgan Fleming Asset Management as the Managing Director, Head of Currency and Client Manager – US where he worked from 1999 to 2001.
He co-authored the book Rethinking Pension Reform with the late Professor Modigliani (2004, Cambridge University Press) and is the author of Innovations in Pension Fund Management (2001, Stanford University Press). He is also co-author of Professor Robert C. Merton, with whom he has proposed a new instrument called retirement SeLFIES (Standard of Living indexed, Forward-starting, Income-only Securities) to address the global pension crisis. He serves on the Advisory Board of the Retirement Management Journal, the Journal of Investment Consulting, and Journal of Performance Measurement.
- When and why did you decide to pursue an academic career?
I was very blessed to have fantastic teachers. So I think the biggest thing I learned from them was that the best way to return the beautiful gift they gave me is to share that knowledge with someone else. I love teaching as a result. Just walking around the campus with young people with new ideas. It's like a tonic every morning to be around young people so it's a job you really love because you can change lives.
- What other research areas would you like to develop in the future?
So in fact, the project I am working on with professor Mantilla is this simple idea I have of creating a new financial instrument in Colombia, which can not only give people a very safe retirement but also lower the fees they have to pay. Professor Mantilla has done fantastic work in Colombia, taking our idea to show that it can be applied very easily in Colombia. Yesterday, he arranged some fantastic meetings with the regulators. Today, we are going to meet some people from the pension funds. So, if that can be successful in Colombia, I think that would be a fantastic outcome of the trip. What comforts me is that the local people's level of knowledge is so high that not only did they understand the concept but they also took it two or three steps beyond.
- How does your work contribute to society as a whole?
All countries are getting older; there are less children more old people; many people haven’t saved for their retirement, so if we don't fix this now, our children are going to have to pay a lot of taxes which means their lives will be worse but also that there will be a lot of poor people on the street. So if we can address this one problem and allow people to retire nicely and not be dependent on other people, I think that this can have a dramatic effect on society, not just from a money point of view but also from a happiness point of view.
- How would you describe your teaching philosophy?
My life has been a whole bunch of experiences. Some good decisions and some bad decisions. Especially in finance, I think the next generation of students are going to have to make a lot of decisions themselves. In the old generation, the parents looked after the young people, then the young people looked after their parents and there was all that dependency. Now, it has become much more individual. People have to save for their own pension and make their own investment decisions. So what I try to teach them is to not make the mistakes that I made because no one taught me to not do certain things. In a way that's the best thing I can teach them.
- What do you learn the most from the interaction with your students?
- What would you highlight from your visit to Universidad de los Andes School of Management?
Yes. I am very impressed by not only the university but also in Colombia, in general, the amount of knowledge about pensions and financial regulations and to see the level of advanced thinking and new ideas coming out.
Host professor, Daniel Mantilla tells us about Professor Muralidhar's visit to the School of Management.
– How do you know the professor? What are the main research links?
I was put in touch with Professor Arun Muralidhar because he has collaborated with Professor Lionel Martellini from EDHEC Business School, with whom I have been working ever since I wrote my doctoral studies in France. In particular, the research link is the construction of optimal retirement solutions. Professors Muralidhar, Martellini and Merton (Nobel Memorial Prize in Economic Sciences laureate) have been advocating the issuance of special bonds known as retirement SeLFIES (Standard-of-Living-indexed Forward-starting Income-only Securities) to governments around the world. These bonds can solve a core risk-management problem faced by pension fund affiliates, and help them plan for retirement.
– What is the main purpose of the professor’s visit?
The purpose of his visit is for us to exchange more information with Professor Muralidhar and initiate research collaboration in the subject of retirement SeLFIES and goal-based retirement solutions. Also, to reach greater awareness of the potential impact that this simple but extremely powerful financial innovation could have in Colombia.
– Why is it important to have this professor at the School?
Professor Muralidhar is a global thought leader in the subject of retirement solutions and pension systems, and having him at the School creates links with our professors that could lead to important improvements in the landscape of available retirement solutions, and the health and effectiveness of the pension system in Colombia and the region.
– What are the expectations in terms of his research contribution to the academic area?
Professor Muralidhar is working on different financial innovations aimed at creating long-term investment strategies that are adapted to the needs and goals of individuals seeking to finance a replacement income in retirement. Examples of these innovations are the retirement SeLFIES, the Longevity-Indexed Variable Expiration (LIVE) bond, and the retire-in-home contract, which is a variation of reverse mortgages that simplifies the transaction and aligns incentives among the parties involved.
His research also explores the crucial implications for asset pricing models of taking into account the goals and/or liabilities of the agents in financial markets.