Abstract
Pension Funds and Financial Repression
Highlights
Financial repression occurs when governments channel funds to themselves at below market rates by various means – including from institutional investors such as pension funds
One form of financial repression is accessing funds from “captive audiences:” pension funds, banks and insurance companies which are compelled in some fashion to channel funds towards government at low interest rates
Canada’s public pension funds provide a good example of institutions which have transitioned from having little independent governance and a lack of investment diversification to being global governance leaders. Their foundation built on stakeholder trust, design and management principles and results focused execution can be a lesson for pension funds and policy makers in other countries
Summary
Financial repression occurs when governments channel funds to themselves at below market rates by various means – including from institutional investors such as pension funds. Whilst other methods of repression (such as capital controls) are no longer as widely practiced and accessing funds from the banking sector entails adverse short-term consequences, using longer-term capital such as pension funds has become more of an option They have grown in size as populations worldwide have aged and their assets have grown. Lessons from countries where pension fund assets have been successfully channeled towards long-term development suggest that funds should be subject to clear transparency and accountability rules In these cases, capital extracted through financial repression is often managed professionally, at arms-length. Canada’s public pension funds provide a good example of institutions which have transitioned from having little independent governance and a lack of investment diversification to being global governance leaders Their foundation built on stakeholder trust, design and management principles and results focused execution can be a lesson for pension funds and policy makers in other countries.
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