Building Long-Term Portfolio Benchmarks for Pension Funds in Emerging Economies
The movement from a defined benefit to a defined contribution pension system has important implications in the area of portfolio allocation. While the focus of defined benefit pension funds is essentially in the long term, some defined contribution...
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| Format: | Working Paper |
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/08/26662118/building-long-term-portfolio-benchmarks-pension-funds-emerging-economies http://hdl.handle.net/10986/24865 |
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okr-10986-248652021-04-23T14:04:28Z Building Long-Term Portfolio Benchmarks for Pension Funds in Emerging Economies Rudolph, Heinz P. Sabat, Jorge pension funds investment incentives contributory pensions financial modeling investment regulatory framework The movement from a defined benefit to a defined contribution pension system has important implications in the area of portfolio allocation. While the focus of defined benefit pension funds is essentially in the long term, some defined contribution funds might have incentives to invest with shorter-term horizons. The case of open pension funds, such as the ones in several countries in Latin America and Central and Eastern European countries, shows that competition on short-term returns may bring pension funds into suboptimal portfolio strategies. As policy makers become increasingly interested in finding long-term sources of financing for infrastructure and other long-term projects, it becomes essential to upgrade the regulatory framework of open pension funds. This paper contributes to the literature by proposing an investment regulatory framework based on strategic asset allocation that can be applicable to open pension funds. Based on the use of lifecycle investment strategies, the paper proposes the implementation of common portfolio benchmarks for pension funds. Three elements are emphasized for implementation of strategic asset allocation: (a) a well-defined pension objective, (b) sound governance of the portfolio benchmark, and (c) a methodology for developing the benchmark. The paper proposes the use of the approximation methodology as a starting point for designing portfolio benchmarks, and illustrates step-by-step how to build these long-term portfolios in a didactical way. 2016-08-10T15:07:16Z 2016-08-10T15:07:16Z 2016-08 Working Paper http://documents.worldbank.org/curated/en/2016/08/26662118/building-long-term-portfolio-benchmarks-pension-funds-emerging-economies http://hdl.handle.net/10986/24865 English en_US Policy Research Working Paper;No. 7784 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Europe and Central Asia Latin America & Caribbean Central Asia Eastern Europe Europe and Central Asia Latin America |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
pension funds investment incentives contributory pensions financial modeling investment regulatory framework |
| spellingShingle |
pension funds investment incentives contributory pensions financial modeling investment regulatory framework Rudolph, Heinz P. Sabat, Jorge Building Long-Term Portfolio Benchmarks for Pension Funds in Emerging Economies |
| geographic_facet |
Europe and Central Asia Latin America & Caribbean Central Asia Eastern Europe Europe and Central Asia Latin America |
| relation |
Policy Research Working Paper;No. 7784 |
| description |
The movement from a defined benefit to a
defined contribution pension system has important
implications in the area of portfolio allocation. While the
focus of defined benefit pension funds is essentially in the
long term, some defined contribution funds might have
incentives to invest with shorter-term horizons. The case of
open pension funds, such as the ones in several countries in
Latin America and Central and Eastern European countries,
shows that competition on short-term returns may bring
pension funds into suboptimal portfolio strategies. As
policy makers become increasingly interested in finding
long-term sources of financing for infrastructure and other
long-term projects, it becomes essential to upgrade the
regulatory framework of open pension funds. This paper
contributes to the literature by proposing an investment
regulatory framework based on strategic asset allocation
that can be applicable to open pension funds. Based on the
use of lifecycle investment strategies, the paper proposes
the implementation of common portfolio benchmarks for
pension funds. Three elements are emphasized for
implementation of strategic asset allocation: (a) a
well-defined pension objective, (b) sound governance of the
portfolio benchmark, and (c) a methodology for developing
the benchmark. The paper proposes the use of the
approximation methodology as a starting point for designing
portfolio benchmarks, and illustrates step-by-step how to
build these long-term portfolios in a didactical way. |
| format |
Working Paper |
| author |
Rudolph, Heinz P. Sabat, Jorge |
| author_facet |
Rudolph, Heinz P. Sabat, Jorge |
| author_sort |
Rudolph, Heinz P. |
| title |
Building Long-Term Portfolio Benchmarks for Pension Funds in Emerging Economies |
| title_short |
Building Long-Term Portfolio Benchmarks for Pension Funds in Emerging Economies |
| title_full |
Building Long-Term Portfolio Benchmarks for Pension Funds in Emerging Economies |
| title_fullStr |
Building Long-Term Portfolio Benchmarks for Pension Funds in Emerging Economies |
| title_full_unstemmed |
Building Long-Term Portfolio Benchmarks for Pension Funds in Emerging Economies |
| title_sort |
building long-term portfolio benchmarks for pension funds in emerging economies |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/08/26662118/building-long-term-portfolio-benchmarks-pension-funds-emerging-economies http://hdl.handle.net/10986/24865 |
| _version_ |
1764457858204696576 |