Pension Fund Governance Research Articles

Is Governance Related to Investment Performance and Asset Allovation? Empirical Evidence from Swiss Pension Finds

This study investigates the relationship between governance, investment performance and asset allocation of pension funds in Switzerland. Our sample includes survey data from 139 Swiss occupational pension plans for which we develop a governance metric comprising attributes of organisational design, management incentives, target setting, investment strategy, investment processes, risk management, monitoring, and transparency. We find empirical evidence that pension fund governance is positively related to excess returns, benchmark outperformance and Sharpe ratios. Pension funds in the top governance quartile outperform those in the bottom quartile by approximately 1% in terms of average excess returns and benchmark deviation. Furthermore, our study results indicate that asset allocation decisions are not related to governance, but rather to institutional factors.

On the Price of Morals in Markets: An Empirical Study of the Swedish AP-Funds and the Norwegian Government Pension Fund

This study empirically analyses the exclusion of companies from investors’ investment universe due to a company’s business model (sector-based exclusion) or due to a company’s violations of international norms (norm-based exclusion). We conduct a time-series analysis of the performance implications of the exclusion decisions of two leading Nordic investors, Norway’s Government Pension Fund-Global (GPFG) and Sweden’s AP-funds. We find that their portfolios of excluded companies do not generate an abnormal return relative to the funds’ benchmark index. While the exclusion portfolios show higher risk than the respective benchmark, this difference is only statistically significant for the case of GPFG. These findings suggest that the exclusion of the companies generally does not harm funds’ performance. We interpret these findings as indicative that with exclusionary screening, as practiced by the sample funds, asset owners can meet the ethical objectives of their beneficiaries without compromising financial returns.

The investment attractiveness of companies listed on the Warsaw Stock Exchange to Sovereign Wealth Funds

The aim of this study is to shed some light on the factors determining the investment decisions of Sovereign Wealth Funds. Using the financial data from companies listed on the Warsaw Stock Exchange, the author employs a logit model to analyse the probability that firms are targeted for investment by the Norwegian Sovereign Wealth Fund. These findings suggest that not only the growth of earnings per share increases the probability of such investment, but that also a company whose shares have been bought by the Government Pension Fund Global has, on average, a higher level of earnings per share than companies not targeted by the Fund. This study contributes to a deeper understanding of the investment activities of the world’s largest Sovereign Wealth Fund.

Independence and the Governance of Superannuation Funds

The failure of the Federal government’s Superannuation Legislation Amendment (Trustee Governance) Bill 2015 to pass through the Senate in November 2015 means that the political spotlight has for the time being shifted away from the issue of independence on superannuation fund boards. This creates a valuable opportunity for further reflection on precisely what board member independence might offer the superannuation system. This paper aims to contribute to that deliberation. It introduces a variety of seminal concepts drawn from independence theory, reviews the growing literature on pension fund governance and maps the ways in which the regulatory regime currently aims to promote cognitive independence on the part of superannuation fund board members. It uses that as a foundation for deriving a more sophisticated, nuanced and ultimately more compelling rationale for the imposition of structural independence on superannuation fund boards. That rationale encompasses both a desire for improved decision-making by superannuation fund boards and a recognition of the valuable role that structural independence can play in inspiring confidence in the system. This confidence, in turn, can contribute to the legitimacy of a system in which participation, as a result of the Superannuation Guarantee, is almost compulsory. A second, complementary paper will evaluate the practical issues associated with using structural regulation specifically to achieve cognitive independence on superannuation fund boards.

Is the Norwegian model exportable to combat Dutch disease?

In many countries, oil and gas resources have proved detrimental to economic development. Norway is often presented as a resource-abundant economy which has avoided symptoms of resource curse, such as Dutch disease. This paper analyzes the key features of the Norwegian oil and gas industry, including Statoil and the Government Pension Fund Global, and it reflects on the not exportable (specificities) and exportable aspects of Norway’s experience. From this analysis, we formulate the lessons that the Norwegian experience can provide to foster the improved management of oil and gas resources in other economies.

Pension beneficiaries’ and fund managers’ perceptions of responsible investment: a focus group study

Purpose This study aims to explore the views of pension beneficiaries and fund managers regarding greater involvement and investment autonomy and the attitudes toward diverse responsible investment criteria. The conventional form of investing is usually vulnerable to high financial market volatility events and financial crises, and most importantly, it has proven insufficient in addressing important social issues. A newly introduced investment culture known as impact investing strives for social gains in the long term rather than the maximization of financial returns by aiming to tackle social problems. However, some in the field claim that implementing such investment policies compromises the fiduciary responsibility of pension funds’ trustees to manage trust funds in the best interest of beneficiaries. Design/methodology/approach This study uses qualitative methods to explore the perception of proposed pension policies, such as beneficiaries’ greater involvement in determining pension investment policies that can have a positive long-term impact on their lives and on the provision of investment autonomy. For this purpose, the study investigates beneficiaries’ positions regarding responsible investment criteria from a freedom-of-choice perspective. The study sample consists of members and managers of a Dutch pension administrative organization with a cooperative structure. Three semi-structured, homogeneous discussions with focus groups containing between seven and nine participants each are conducted. The data are coded both deductively and inductively, following the framework approach, which is a qualitative data analysis method. Findings Participants demonstrate positive attitudes toward greater involvement and freedom of choice. However, the findings also indicate that members and pension fund managers have different views regarding responsible investment criteria. Members have more favorable attitudes toward responsible investment than do managers. Research limitations/implications This research is limited to focus group discussions with managers and members in the Dutch healthcare sector. Practical implications How little the current pension system matches people’s investment preferences is a matter of concern, and the main implications of this research thus center upon designing a more democratic pension system for the future. Greater involvement by pension fund beneficiaries, whose roles are currently limited, would help legitimize responsible investing. This research implies that pension policies should be designed to align with the preferences of pension fund beneficiaries and be accompanied by diverse intervention strategies. Social implications Pension reforms that encourage pension beneficiaries to exert greater influence in determining pension policy will help shrink the democratic deficit in collective pensions. Originality/value This study contributes to the literature on pension fund governance and long-term responsible investing by examining the attitudes toward impact and sustainable investments and by making suggestions for future research. To the best of the authors' knowledge, this study is the first to investigate the attitudes of pension fund participants toward targeted impact investments.

Ambiguity, discretion and ethics in Norway's sovereign wealth fund

An increasing number of public institutional investors are adopting sustainable and ethical investment policies. While financial tests of materiality and norm structures are often assumed to guide their implementation, this assumption is challenged by the increasing complexity in global financial markets. This article provides an analytical framework to explain these implementation problems by drawing attention to the ambiguity inherent in investment policies. Ambiguity means there is no ideal outcome. Agents must use their discretion to interpret investment policies, which is at odds with conventional theories of discretion that assume a unique policy goal. This article argues that ambiguity impacts institutional investors in two contrasting ways. Ambiguity acts as a built-in mechanism for adapting investment policies to increasing complexity in global financial markets. But the resources required to maintain legitimacy under ambiguity detract from the investor's capacity to actually implement its policy. This framework is used to analyze the evolution of the Norwegian sovereign wealth fund (SWF)'s ethical investment policy. The article finds that agents use their discretion to interpret the Fund's investment policy in ways that align with its long-term mandate.

Asset Allocations in a Thai Defined Contribution Fund: A Behavioural Experiment Conditioned on Financial Expertise

This paper reports the results of a behavioural finance experiment on the ability of Thai individuals to make informed investment decisions under a defined contribution self-management option. Using an asset allocation dataset from members of the Thai Government Pension Fund (TGPF) and a control sample of financially knowledgeable individuals (MBA finance students), we report that TGPF members are relatively more risk averse, exhibit a greater home investment bias, and over-react to market price movements. Financially savvy MBA students hold more shares and international securities, and earn greater long term returns. The fact that the worse performing TGPF member allocations outperform the TGPF default plan, along with strong preferences for time liquidity diversification, provide challenges for TGPF managers to increase their financial engineering and to continue to lobby for restrictive investment ceilings to be revised.

THE ROLE OF THE NORTH SEA OIL RESOURCES IN NORWAY’S ECONOMY

Today Norway is a highly developed country with a predominantly service sector in the economic structure. However, oil continues to play a major role in the life of the state and society as one third of state revenues is based on oil resources, while export of raw materials totals more than a half of the country's overall export. However, it is not quite possible to cover the entire oil sector in Norway within the scope of one piece of work due to the differences in the characteristics of each of the three sources of the country's oil. In this context, the resources of the Norwegian and Barents Seas are associated with the problems of the Arctic and the Arctic law. At the same time, the North Sea is the most regulated area, besides it is the so called "homeland" of the oil production in Norway. Thus, this paper analyzes the role of the North Sea oil in the economy of Norway, which is the basis of its economic prosperity. Due to its oil revenues, Norway was once able to build a welfare state. Also the unique system of accumulation of oil revenues, which is reflected in the functioning of the Government Pension Fund of Norway, is a relevant issue as well. The article deals with the emergence of the oil industry in the country from a historical perspective, and analyzes its current state, including a detailed analysis of the existing fields and pipelines. Furthermore, the authors propose the estimation of state revenues from the oil production in the North Sea.

Sustainable Development in Norway on the example of Government Pension Fund Global

This article is an attempt to assess the functioning of the Norwegian Government Pension Fund Global in relation to the degree of implementation of the concept’s objectives of sustainable development. The aim of the article apart from this assessment is to determine significance and the benefits of the concept to the Fund and the country. To apply the hypothetical-deductive method. The concept of sustainable development has a relatively long history in Norway. Sustainable development is not just a dead regulation, but a way of thinking Norwegians. Social awareness of balance need causes of naturalness of reconciling the economic, social and environmental interest in economy. On the one hand, Fund acting within state structures, is the implementing tool of sustainable development policy. On the other, the Fund uses assumptions of the concept to achieve sustainable economic benefits. Maturity sustainable activities of the Fund contributes to the achievement of competitive advantage among other funds. The Fund is the largest Government Pension Fund in the world in terms of net assets, of which the largest part of the market value is an inflow of capital from outside. Investors deposit their funds in it because they trust to management style. Due to the global character, size and geographical or investment diversification, manifestation of sustainable practices reaches to wide-spectrum of recipients. The range of message builds the Fund and country reputation that actively suggests the only one way to sustainable development.

Charity ethical investments in Norway and the UK

Purpose– The purpose of this paper is to explore whether, how and why ethical investment practices of charities differ between two countries with quite different ideological and institutional frameworks – Norway and the UK.Design/methodology/approach– The paper uses mixed methods and a cross-sectional field study design to explore the ethical investment practices of 300 of the largest charities by investments in the UK and Norway. Practices are theorized using the dual lens of institutional theory and social origins theory.Findings– The paper provides evidence on why charities established the practice of ethical investment. The results show that large charities were more likely to have an ethical policy; that charities with moderate public sector funding were more likely to have an ethical policy. In line with institutional theory some Norwegian charities with public sector funding mimic the policy of the Government Pension Fund, and the ethical investment policy of Norwegian charities was more influenced by donors. Institutional entrepreneurs (charity founders) had a more prominent influence in UK charities.Research limitations/implications– The paper highlights that more research is needed on sovereign wealth funds, their investment practices and how they affect charities.Practical implications– The findings of this paper highlight the potential role that the ethical investment practices of sovereign can play a soft regulatory function in changing the behaviour of other investors.Social implications– To the extent that ethical investment practices are construed as having a positive social impact, then this study shows how a government sovereign wealth fund can influence the spread of ethical investment practices.Originality/value– This paper, which sits at the nexus of the charity and corporate social responsibility (CSR) literatures, contributes by responding to calls for more research on charity practices in different countries and CSR practices in different countries. This comparison also contributes to the development of institutional theory by shedding light on the institutional influence of a sovereign wealth fund and its impact on others. The paper will be of value to academics, policy setters and regulators.

Strategic intervention for the economically active? Exploring the role of selected English local authorities in the development of new market rental housing with pension fund investment

Drawing on qualitative data the paper explores a shift in the focus of the English local authority enabling/strategic function towards innovative models to stimulate new supply of market rented homes, with local authority pension funds as institutional investors. It is argued that these initiatives are significant in illustrating the role of local, rather than national authorities, as initiators and trailblazers of policy towards the private rented sector. The importance of policy discourses that prioritise the needs of economically active households in justifying the use of publicly owned land for the development of privately-owned rented housing is explored in the context of debates around modes of local economic development in the global context. It is suggested that although the identification of local government pension funds as institutional investors may create an impression of social accountability and an ethical dimension to these innovations, they nevertheless represent a form of marketization of socially-held assets. This raises questions about the changing nature of the enabling/strategic function within English local authorities and the extent to which the previous focus on affordable housing delivery is being diminished in the dedication of local authority resources such as land to a profit-driven form of housing supply.

International Financial Reporting Standards Compliance: Evidence from Ghana

Ghana adopted International Financial Reporting Standards (IFRSs), in place of Ghana National Accounting Standards (GNASs) from 1st January, 2007, for all listed companies including government business enterprises, banks, insurance companies, security brokers, pension funds, and public utilities. This study examines the extent of compliance with IFRSs disclosure requirements, by analysing annual reports of listed companies on the Ghana Stock Exchange. The study also investigates factors associated with the level of compliance. Findings reveal a high level of (83%) compliance with IFRSs disclosure requirements with leverage and multiple listing statistically associated with the level of compliance. Although, the listed companies complied with more than 60% of the IFRSs disclosure requirements, regulatory intervention is needed to ensure full compliance.

Culling Black Sheep to Better the Flock: The Positive CSR Outcomes Of Negative Screening

This paper explores whether and how negative screening of firms by a prominent institutional investor could lead to broader social welfare benefits. Extending research on negative spillover effects of delegitimizing events, we offer the first systematic study of the effect of censorship, defined as divestments which incorporate public naming and shaming, on non-culpable firms’ corporate social responsibility. Employing a quasi-natural experiment, we show that non-culpable firms proactively respond to the Norwegian Sovereign Wealth Fund’s censorship announcements by improving their corporate social responsibility. Further, we draw on attention- based theory and test a number of mechanisms that moderate the effect of censorship. We find that the effect of censorship is greater in the presence of shareholder activism and higher ownership stakes. Our investigation into the phenomena of censorship unites two separate literatures on negative spillovers and institutional activism. We also show that portfolio membership to be a more relevant category space compared to industry in the presence of censorship, contrary to extant theory on industry categorization. From a policy standpoint, these findings suggest that social investors’ current criticisms toward negative screening and the privileged use of management dialogues alone may be misguided and should be revisited.

Sovereign Wealth Fund Asset Allocations—Some Stylized Facts on the Norway Pension Fund Global

Abstract The Markowitz portfolio theory has been used during the past six decades by various institutional investors, including sovereign wealth funds (SWFs), to determine their asset allocations. Our analysis of the strategic asset allocation of the world's largest sovereign wealth fund—The Norway Government Pension Fund Global (GPFG)—demonstrates that it is broadly consistent with that generated by the one-period Markowitz model. GPFG's investment performance critically depends on its permissible asset classes, risk tolerance and strategies mandated in attaining the set portfolio objectives, such as stability of returns over an assumed time horizon. Also, appropriate asset weight rebalancing has allowed for higher returns and achievement of long-term investment objectives. The obtained asset allocation results need to be compared with those for other SWFs so as to determine whether there is a broader conformity of SWF actual allocations with those proposed by the Markowitz model.

Africa’s Last Colony

Africa’s Last Colony

(Asset Management of Public Pension Fund in Norway)

Russian Abstract: Данная работа посвящена анализу управления активами Государственного пенсионного фонда Норвегии, в том числе двух его составных фондов – Государственного пенсионного фонда Глобальный и Государственного пенсионного фонда Норвегии. В результате были выявлены особенности инвестиционной политики, разрабатываемой и реализуемой Правительством Норвегии, Министерством финансов Норвегии, а также органами оперативного управления, в том числе проанализирована организационная структура управления, особенности формирования инвестиционной стратегии и портфеля, выявлены ключевые подходы к управлению рисками, а также оценены результаты инвестиционной деятельности на финансовых рынках. На основе проведенного анализа авторами предложены основные направления совершенствования управления российскими суверенными фондами – Резервным фондом и Фондом национального благосостояния РФ. English Abstract: This paper is dedicated to the analysis of Norwegian Government Pension Fund’s asset management, which include Government Pension Fund – Global and Government Pension Fund – Norway. The result revealed the main features of the Fund’s investment policy, developed and implemented by The Government of Norway, Norwegian Ministry of Finance and the operational managers, as well as was analyzed the organizational structure and investment strategy of the Fund, portfolio forming, risk management and the investments results on financial markets. Based on the analysis authors proposed the key directions for improving of Russian sovereign wealth funds’ asset management – Reserve Fund and National Wealth Fund of the Russian Federation.

Pension fund vulnerability to the financial market crisis: The role of trade unions

Restricted public pension schemes and cuts in earnings-related pensions have increased the role of pension funds. However, it is unclear from previous studies how far financial market crises affect pension funds mediated by trade unions and employee participation. This article draws on institutionalist arguments to link different mechanisms of coordination of market economies to differences in pension systems, corporate and pension fund governance, investment strategies and thus the vulnerability of pension funds to financial market risks. There is higher vulnerability to financial market crises in liberal market economies with weak trade union influence and high equity exposure.

Investing in Sustainability: Reform Proposals for the Ethics Guidelines of the Norwegian Sovereign Wealth Fund

The Norwegian Government Pension Fund Global (GPFG), the largest sovereign wealth fund in the world and thus arguably one of the most influential investors in the marketplace, is at the forefront of responsible investing. This article examines reform proposals that have been suggested by a government appointed body mandated to assess the GPFG's work on responsible investment and suggests additional reforms to enhance its effectiveness as a responsible investor.

State and Local Pension Fund Governance and the Process of Contracting for Investment Services: The Scope of Diversity and the Problem of Embeddedness

US state and local public employee retirement systems (PERS) utilise various models of contract with distinctive features in their form and substantive content in relation to industry norms. These models differ between states, within states, and even between PERS within major metropolitan areas. Diversity goes against expectations to the effect that the sector relies upon commonly accepted investment management agreements (IMAs), given the similarities between state and local PERS as to the nature of pension benefits. One goal of this paper is to account for apparent commonalities and differences. Another goal of the paper is to explain the nature and significance of the pre-contract screening of potential suppliers to the sector, suggesting that requests for proposals tend to ‘sterilise’ contracts for investment management services. We provide a comparison of the categories and items evident in model IMAs with reference to selected states, in particular Illinois and the Chicago-area PERS. We also briefly note relevant provisions of pending legislation establishing the Oregon Investment Corporation, emphasising provisions which would enable the fund to make contracts like its private sector peers. The paper concludes that it is important to focus on the process of contracting in the US state and local PERS as well as the form of contract.