Upgrading the Investment Policy Framework of Public Pension Funds

Public pension funds have the potential to benefit from low operating costs because they enjoy economies of scale and avoid large marketing costs. But this important advantage has in most countries been dissipated by poor investment performance. Th...

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Bibliographic Details
Main Authors:	Vittas, Dimitri, Impavido, Gregorio, O'Connor, Ronan
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTANT ACCOUNTING ALTERNATIVE ASSET ALTERNATIVE INVESTMENTS ANNUAL CONTRIBUTIONS ASSET ALLOCATION ASSET ALLOCATIONS ASSET CLASS ASSET CLASSES ASSET MANAGEMENT ASSET MANAGERS AUDIT COMMITTEE AUDIT COMMITTEES BALANCE SHEET BASIS POINTS BOND BOND PORTFOLIO CASH FLOWS CENTRAL BANK COMMERCIAL BANKS CONFLICT OF INTEREST CONFLICTS OF INTEREST CONSUMER PROTECTION CONTRIBUTIONS CORPORATE BONDS CORPORATE GOVERNANCE CREDIT INSTITUTIONS CREDIT RATING CURRENCY CUSTODY DEBT DEBT LEVEL DEBT MANAGEMENT DEBT MANAGEMENT AGENCIES DEBT SECURITIES DERIVATIVE DERIVATIVE INSTRUMENTS DERIVATIVE PRODUCTS DERIVATIVES DEVELOPING COUNTRIES DIRECT INVESTMENT DIVERSIFIED PORTFOLIOS DOMESTIC MARKET DOMESTIC SECURITIES ECONOMIC POLICIES EFFICIENT INVESTMENT ELIGIBLE INSTRUMENTS ELIGIBLE INVESTMENTS EMERGING MARKET EMERGING MARKET COUNTRIES EMERGING MARKETS EQUITIES EQUITY FUNDS EQUITY INDEX EQUITY INVESTMENTS EQUITY MARKET EQUITY MARKETS EQUITY RETURNS EXCHANGE CONTROL EXPENDITURES EXTERNAL ASSET FINANCIAL INSTRUMENTS FINANCIAL LIBERALIZATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL POLICY FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL STATEMENTS FINANCIAL SYSTEMS FISCAL CONSTRAINTS FISCAL DEFICITS FIXED INCOME FOREIGN EQUITIES FOREIGN EXCHANGE FOREIGN EXCHANGE RESERVES FOREIGN INVESTORS FOREIGN MARKETS FUND MANAGEMENT FUTURES GLOBAL MARKETS GOVERNANCE ISSUES GOVERNMENT ACCOUNT GOVERNMENT ACCOUNTS GOVERNMENT BONDS GOVERNMENT BORROWING GOVERNMENT BUDGET GOVERNMENT BUDGET DEFICIT GOVERNMENT DEBT GOVERNMENT FINANCES GOVERNMENT INVESTMENT GOVERNMENT PENSION GOVERNMENT POLICY GOVERNMENT SECURITIES HEDGE FUNDS HOLDING HOLDINGS HOLDINGS OF GOVERNMENT SECURITIES HOME MARKETS HOSTILE TAKEOVERS INCOME INSTRUMENTS INCOME SECURITIES INFLATION INFORMATION SYSTEMS INFRASTRUCTURE INVESTMENTS INSTITUTIONAL INVESTORS INSURANCE INSURANCE COMPANIES INTEREST EXPENDITURE INTEREST RATE INTEREST RATES INTERNAL AUDIT INTERNATIONAL BANK INTERNATIONAL INVESTMENT INTERNATIONAL MARKETS INVESTING INVESTMENT ASSETS INVESTMENT BANK INVESTMENT CORPORATION INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT FUNDS INVESTMENT GUIDELINES INVESTMENT HORIZON INVESTMENT HORIZONS INVESTMENT INCOME INVESTMENT INSTITUTIONS INVESTMENT MANAGEMENT INVESTMENT PERFORMANCE INVESTMENT POLICIES INVESTMENT POLICY INVESTMENT PROJECTS INVESTMENT RETURNS INVESTMENT STRATEGIES INVESTMENT STRATEGY LABOR MARKET LEVEL OF RISK LIABILITY LIFE INSURANCE LIFE INSURANCE COMPANIES LIQUID BENCHMARK LIQUID INSTRUMENTS LIQUIDITY LIQUIDITY POSITION LOCAL ECONOMY LOCAL FINANCIAL MARKETS LOCAL GOVERNMENT LOCAL MARKET LONG-TERM INVESTMENT MARKET CONDITIONS MARKET INDEX MARKET LEVELS MARKET RETURNS MARKETABLE ASSETS MARKETABLE INSTRUMENTS MARKETABLE SECURITIES MARKETING MATURITIES MORTGAGE MORTGAGES NATIONAL INVESTMENT NATIONAL TREASURY PENSION PENSION FUND PENSION FUND ASSETS PENSION FUNDS PENSION PLAN PENSION PLANS PENSION SYSTEM PENSIONS PERSONAL INCOME POOR INVESTMENT PORTFOLIO MANAGEMENT PRIVATE EQUITY PRIVATE INVESTMENT PRIVATE PENSION PRIVATE PENSION FUNDS PUBLIC DEBT PUBLIC FUND PUBLIC FUNDS PUBLIC MARKETS PUBLIC PENSION PUBLIC PENSIONS RATE OF RETURN RATES OF INTEREST RATES OF RETURN RECORD KEEPING REPAYMENT RESERVE RESERVE FUND RESERVES RETURNS RISK EXPOSURES SAVINGS SAVINGS PLAN SECONDARY MARKET SENIOR SETTLEMENT SETTLEMENT OF TRANSACTIONS SHARE OF ASSETS SHAREHOLDER SHAREHOLDERS SOCIAL INSURANCE FUND STAKEHOLDERS STOCK MARKET SWAPS TAX THRIFT TRADE UNION TRADING TRANSACTION TRANSACTION COSTS TRANSPARENCY TREASURY BILLS TRUST FUND USE OF DERIVATIVES VALUATION VALUATIONS YIELD CURVE
Online Access:	http://documents.worldbank.org/curated/en/2008/01/9434191/upgrading-investment-policy-framework-public-pension-funds http://hdl.handle.net/10986/6720

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Summary:	Public pension funds have the potential to benefit from low operating costs because they enjoy economies of scale and avoid large marketing costs. But this important advantage has in most countries been dissipated by poor investment performance. The latter has been attributed to a weak governance structure, lack of independence from government interference, and a low level of transparency and public accountability. Recent years have witnessed the creation of new public pension funds in several countries, and the modernization of existing ones in others, with special emphasis placed on upgrading their investment policy framework and strengthening their governance structure. This paper focuses on the experience of four new public pension funds that have been created in Norway, Canada, Ireland and New Zealand. The paper discusses the safeguards that have been introduced to ensure their independence and their insulation from political pressures. It also reviews their performance and their evolving investment strategies. All four funds started with the romantic idea of operating as 'managers of managers' and focusing on external passive management but their strategies have progressively evolved to embrace internal active management and significant investments in alternative asset classes. The paper draws lessons for other countries that wish to modernize their public pension funds.

Upgrading the Investment Policy Framework of Public Pension Funds

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