Pension Fund Investment Research Articles

Effect of Inflation on Pension Fund Investment in Federal Government Securities in Nigeria

This study investigated the effect of inflation on pension fund investment in federal government securities in Nigeria utilizing time series data spanning from 2007 to 2019. Ex-post facto was the research design used in the study. Secondary data for the period were collected from the National Pension Commission Annual Reports and Central Bank of Nigeria Statistical Bulletin. Data collected were analyzed and tested for unit root, using the Augmented Dickey-Fuller test. While Ordinary Least Square (OLS) estimation technique was used to test the hypothesis. The result revealed that inflation rate did not significantly impact on pension fund investment in federal Government Securities in Nigeria. This result implies that pension funds invested in federal government Securities yield adequate return on investment capable of withstanding the adverse effect of rising rate of inflation in Nigeria. This could be that, the volumes of monthly pension contributions channeled into Federal Government Securities actually cover the effect of inflation on pension fund investment in federal government securities in Nigeria. Based on the findings of the study, it was concluded that inflation did not significantly impact on pension fund investment in federal government securities in Nigeria. In line with the findings of the study, it was recommended that Nigerian Pension Industry should continue to advocate that policy makers target reduction in the monetary policy rate and also stabilize the value of Naira in order to enhance actual value of pension benefits in the long run. Also, the National Pension Commission should differentiate the monthly contributions that come into the pension fund investment in the annual report so as to determine the actual return on investment of various securities where pension fund is invested.

Effect of Inflation on Pension Fund Investment in Federal Government Securities in Nigeria

Effect of Inflation on Pension Fund Investment in Federal Government Securities in Nigeria

Pension Fund’s Risk Management Investment Portfolio in Tanzania

The study intends to assess the risk exposure of assets from the pension funds investment portfolio and suggest possible solutions of mitigating the risk of severe loss that is likely to occur over a given period of time. The study engaged secondary data of annual return series from five individual assets which are Government Securities (GSs), Fixed Deposits (FDs), Corporate Bonds (CBs), Equities and Real Estates (REs) with the total number of 18 observations. In order to achieve the objectives of the study, the author applied the Generalized Auto-Regressive Conditional Heteroskedasticity (GARCH) model and Cornish-Fisher expansion model for data analysis to calculate Value at Risk (VaR) for individual assets in Pension Funds investment portfolio from the financial year 1998/1999 to 2016/2017. The results from both techniques employed indicated that, Corporate Bonds (CBs) has the highest Value at Risk (VaR) followed by, Fixed Deposits (FDs), Equity, Real Estates and Government Securities (GSs). There were some renovations in the social security industry in Tanzania as among the approaches to combat risk that avails with minimal effects in the operationalization of Pension Funds, therefore the findings of the study are relevant to help pension funds in Tanzania to mitigate the risk of strict loss that is likely to occur in their investment portfolio due to market fluctuations over a given period of time.

Reflections on Professional Ethics in Investment Management and Pension Fund Investment Consulting

This article is a travelogue of sorts. The author shares with the reader two of his ethical journeys. The first part of the article describes a set of lessons derived from having interviewed 25 senior investment professionals about ethical dilemmas they faced in their careers and how they view the state of ethics in our field. The second part provides a detailed ethical analysis of a single issue: what should investment professionals do if they believe a client has an illusory understanding of his or her financial condition? The author discusses that specifically in the context of investment professionals who advise public and Taft–Hartley pension funds.

Environment, Social, and Governance Performance and Financial Performance With National Pension Fund Investment: Evidence From Korea.

This study attempts to examine the relationship between environment, social, and governance (ESG) management and financial performance and the role of socially responsible investment in the National Pension Fund (NPF), Korea’s largest institutional investor. This study tries to provide evidence for the slack resource hypothesis by verifying whether companies with higher financial performance make more efforts to improve ESG performance. In addition, we tried to validate whether NPF is expanding its investments in corporations with high economic performance and high ESG performance. Based on our analysis, Korean companies with good financial performance actively participate in ESG. When we compared the performance between 2019 and 2020, companies with high ESG performance increased regardless of financial performance level, whereas companies with high financial performance and low ESG performance decreased. This represents that the perception and attitude of Korean companies toward ESG management are evolving. NPF has a high investment ratio for firms having a high ratio in both financial and ESG performance. NPF further invested in companies with high ESG performance, even if the financial performance is not decent. This study provides evidence that Korean companies’ interest in ESG management as well as the behavior of socially responsible investment of NPF are rising.

Investment fund selection techniques from the perspective of Brazilian pension funds

ABSTRACT The aim of this article was to evaluate the effectiveness of investment fund selection techniques from the perspective of Brazilian pension funds. Asset liability management (ALM) and liability driven investment (LDI) strategies are usually adopted to guide pension fund managers in relation to strategic allocation in asset classes that should compose their investment portfolios and to the liquidity needed in each period, but not specifying in which assets to allocate resources from among the infinity of assets available in the financial market. This article contributes to tactical management in the fixed income and stock segments outsourced via funds and demonstrates that adopting simple indicators can increase investment performance. The article broadens the knowledge on pension fund investment decisions and creates confidence in the adoption of the Sharpe ratio as a technique for choosing investment funds. We analyzed the returns obtained by hypothetical portfolios built using the following techniques: (i) the Sharpe ratio; (ii) the alpha of a multifactor model; (iii) data envelopment analysis (DEA) efficiency; and (iv) the different combinations of these techniques. We considered information on 369 funds from 2013 to 2018, adopting 12 temporal windows for choosing and re-evaluating the portfolios. The returns obtained were compared with the mean actuarial goal of the benefits plans administered by the pension funds, by means of the unplanned divergence (UD). When outsourcing pension fund investments in fixed income and stock investment funds it was verified that the Sharpe ratio contributes significantly to pension fund performance, compared with other indicators and techniques or a combination of them.

Have scale effects on cost margins of pension fund investment portfolios disappeared?

ABSTRACT Investment costs of pension funds are crucial for their returns. Consolidation in the pension fund market proceeds continuously, often with cost savings as the main argument. Unused economies of scale in pension fund investment costs, however, have declined over the years to values close to zero, except for very small pension funds. This paper investigates investment economies of scale in the Netherlands and pays special attention to the non-linear relationship between investment costs and sizes of pension funds. Furthermore, investment cost margins are disaggregated into three cost types and into six asset categories. Performance fees are in particular paid for complex asset categories held by large pension funds. They reduce the traditional-scale economy results for the entire portfolio. Cost savings by consolidation is still possible but is very limited.

The impact of pension fund assets on economic growth in transition countries, emerging economies, and developed countries

<abstract> <p>In this study, the authors aim to analyze the impact of pension asset investments on the economic growth of selected non-OECD countries, taking into account the controlling effect of gross fixed capital formation, domestic credit to the private sector, inflation, public debt and population. To conduct the econometric analysis in this study, the authors relied on secondary data published in the annual reports of the OECD, the World Bank and the IMF. Based on the econometric results of this study, the authors conclude that the investment of pension fund assets has positively impacted the economic growth of selected non-OECD countries (2002–2018). This study is of scientific importance because it provides detailed empirical evidence regarding the investment of pension funds in international financial markets and the effects of these investments on the economic growth of non-OECD countries. Moreover, the authors of this study through this scientific paper provide new scientific evidence to governments and policymakers in these countries on how to design appropriate strategic investment policies so that pension funds invest their pension assets at a safe rate of return from investments to ensure economic growth and efficiency in the capital markets. Given that most non-OECD countries are emerging and transition economies, the importance of this study lies in the fact that the authors, through empirical findings, highlight the importance of pension fund investments in global financial markets and the effects of these investments on the economic growth of these countries.</p> </abstract>

Differences on Topics between the Awarded and Non-Awarded Integrated Reports using Text Mining

In general, integrated report is a report that combines financial and non-financial information. Unlike annual report, it is not mandatory for companies to publish integrated report. In fact, it is voluntary to do so. However, the number of companies issuing an integrated report are increasing every year, in Japan. It is because better integrate report will attract ESG investment from institutional investors. With number of integrated reports increasing, the Japanese Government Pension Investment Fund, GPIF, awards superior integrated report every year. Its name of the award is called “Excellent Integrated Report”. This award is widely known in Japanese financial industry, but GPIF done not disclose selection criteria that deserve a superior integrated report. In fact, selection criteria are black box. The purpose of this study is to clarify the characteristics of superior integrated reports, by comparing the descriptions in the awarded integrated reports with those in the non-awarded integrated reports based on quantitative methods. The result indicates that while similar subtopics are mentioned in both the awarded and non-awarded integrated reports, the awarded integrated reports mention company's Medium-term business plan which includes topics related to “Corporate value”, “Business growth”, and “Business plan”. In order to be recognized as an “Excellent Integrated Report”, it may be first necessary for the company to create a Medium-term business plan that shows how the company's various activities, including ESG, are related to “Corporate value”, “Business growth”, and “Business plan”.

Choosing Pension Fund Investment Consultants

Choosing Pension Fund Investment Consultants

Long lease real estate – a revised role for real estate in pension fund portfolios

PurposeLong lease real estate funds (over £15bn in Q3 2020) have emerged as an increasingly important part of UK pension fund real estate portfolios. This paper explores the reasons for their dramatic growth, their characteristics and performance.Design/methodology/approachThis study uses data for the period 2004–2020 collected directly from fund managers and from AREF/MSCI and empirical analysis to explore their characteristics and performance.FindingsPension fund de-risking and regulatory guidance have supported the dramatic growth of long lease real estate funds. Long lease real estate funds have delivered strong risk-adjusted returns relative to both balanced property funds (with shorter lease terms) and the wider property market. This relative performance has been particularly strong when wider property market performance has been weak. Long lease funds have objectives aligned with liability matching and their performance suggests they are lower risk (more bond-like) investments. In addition, our analysis highlights they are far less responsive to the wider property market than balanced funds. However, they are not significantly different from balanced property funds in terms of their short-term relationship with gilt yield movements.Practical implicationsFor pension funds and other investors the paper highlights that long lease real estate funds offer a different exposure than balanced property funds. Long lease funds have objectives more closely aligned to the overall objectives for pension fund investment but are not significantly more reliable than balanced property funds in the short-term as a liability hedge. For real estate fund managers, occupiers, developers and others active in the real estate market, the paper highlights why these funds have been (and are likely to remain) attractive to investors leading to substantial demand for long lease real estate investments.Originality/valueThis is the first study to review this increasingly important part of the UK real estate fund universe.

Analysis of Pension Fund Investment Portfolio Diversification Policy and Its Impact on Financial Performance (Study on PLN Pension Fund 2010-2018)

In deciding to invest in a financial instrument in the money market or capital market, experience and sharpness of analysis are needed so that investors can maximize the obtain returns, for pension fund managers it is important to be able to develop the set of funds obtained from customers in order to provide maximum returns. and the available funds become more useful. This study aims to analyze the optimization of the diversification of pension fund investment portfolios policy and their impact on the financial performance of pension funds. This research was conducted on Employer Pension Fund (DPPK) PT. PLN (Persero) during the period of 2010-2018 using two analytical models, namely the Markowitz and Sharpe models, then the results of the two models were compared with the paired t-sample difference test and correlated with the Pearson correlation test. The calculation results conclude that the portfolio proportions of 6 types of investment instruments provide almost the same optimal results based on the two models and based on the proxies of the two models in analyzing portfolio optimalization on financial performance there is no significant difference with a result of 0.094. The Markowitz model with consideration of investors' preferences for risk has a strong correlation with one of the financial indicators, namely the Fund Adequacy Ratio (FAR) with a correlation value of 0.637 or 63.7%.

Pension fund investment in commercial real estate: a qualitative analysis of decision-making and investment practices in Brazil

ABSTRACT Existing research has shown that pension funds have been adopting financialized real estate governance models and investment practices more concerned with the short-term risk–return performance of the portfolio. This study of the property portfolios of Brazil’s largest pension funds shows that financialization is a powerful force but does not fully explain pension fund commercial real estate investment and management practices which are strongly predicated upon three guiding principles: (1) an awareness of the constraints posed by pension liabilities; (2) a focus on asset-specific competences to increase returns; and (3) a prioritization of in-house investment management. These practices are, however, challenged by a recent Monetary Board decision to ban direct property investment by pension funds and place their resources at the disposal of the financial industry.

Sustainable Income at Retirement and UK Pension Fund Investment Oversight: a Practice Perspective

Using practice theorizing, this paper sheds more fresh light into pension fund investment oversight and how trustees make strategic investment decisions in the complex institutional context. Using the insights from 22 in-depth interviews of pension fund trustees and pensions experts, we reveal that pension fund governance has been ‘ritualised’ in embedded and self-perpetuating practices. Specifically, the process of pension fund investment is dominated by a variety of contextual and internal constraints that often lead to a loss of value within pension fund investments, which is not in the long-term best interests of pension fund savers. Theoretically, our study raises important questions about the appearance rather than substance of governance and the principal role of pension fund trustees as non-executives in this process. We highlight the conflicting intersections around trustees as socially legitimate, trustworthy, independent social actors, as well as the challenges of working across social processes and structures in the effort to achieve fairer and more sustainable financial institutions. This has significant implications for policy and practice.

UK Pension Fund Investment Myopia: Trustees’ Temporal Narratives and Uses of the Past

In this exploratory study we utilise theorization about time through ‘rhetorical history’ narratives to examine organisational uses of the past and how pension fund trustees manage the tension between short- and long-term investment strategies. We identify and elaborate on distinctive temporal narratives of systemic, organizational and trusteeship role legacies that appear to contribute to organizational inertia and myopic investment, which seems to exacerbate investment short-termism even further. Theoretically, our study offers an alternative perspective to the established view of ‘rhetorical history’ as a positive force on strategic decision-making. We argue that there is a need to understand better how uses of the past affect strategic management within organizations, focusing on the negative as well as the positive. Practically, although rhetorical history is seen as a tool that managers can use to mobilize the resources necessary to motivate change, we demonstrate how this tool can also provide a comfort to those who resist change, reinforcing entrenched behaviour and acting as a constraint on progress. In the context of the ongoing policy attempts to change and improve the culture and conduct within financial services in the UK and globally, policy makers need to instil in trustees and in the wider investment community the desire to change dominant narratives as a means of fashioning a more sustainable future.

Introduction

Introduction

Value Judgments at the Heart of Green Transformation: The Leverage of Pension Fund Investors

Abstract As the urgency for green transformation grows, the question of whether finance capital can be harnessed to promote green transformation has been raised. Public pension funds are of particular interest since they are publicly governed, have long-term interest, and are growing in proportion to the global investment capital. However, transformative change demands a reprioritization of fundamental values in terms of trade-offs among economic, environmental, and social ends. This article identifies shifts in value judgments in public pension fund investments and particularly focuses on the institutional constraints by which value (re)priorities are resisted by investigating Swedish public pension funds. While there are signs of environmental embedding of the economy, I also note neutralization of the role and investment strategies of the funds, which has a stabilizing rather than a transformative function. The neutralization constrains deep green transformation, which demands politicization of the role of institutional investors.

Network analysis of pension funds investments

In this paper, we analyze the Italian pension funds and their declared benchmarks, which are market indexes. Within this perspective, the amounts invested in accord to the declared benchmarks can be analyzed like as a portfolio of benchmarks. We aim at understanding whether the pension funds investments are in line with the optimal portfolios which can be built through the declared benchmarks. To achieve the results, we set up a portfolio optimization problem building two networks of pension funds: one based on the (Pearson) correlation, and the other measuring the tail correlation. For each network, we use the local clustering coefficients to describe the level of connectivity, and we insert it in the risk function. This approach allows us to consider the network measures directly in the portfolio optimization model. We compare the results with the classical Markowitz setting, and we find a new efficient frontier overperforming the Markowitz one. A comparison among the performances of pension funds and their declared portfolio of benchmarks is also reported.

Have scale effects on cost margins of pension fund investment portfolios disappeared?

Investment costs of pension funds are crucial for their returns. Consolidation in the pension fund market proceeds continuously, often with cost savings as the main argument. Unused economies of scale in the pension fund investment costs, however, have declined over the years to values close to zero, except for the very small pension funds. This paper investigates investment economies of scale in the Netherlands and pays special attention to the non-linear relationship between investment costs and sizes of pension funds. Furthermore, investment cost margins are disaggregated into three cost types and into six asset categories. Performance fees are in particular paid for complex asset categories held by large pension funds. They reduce the traditional scale economy results for the entire portfolio. Cost savings by consolidation are still possible but are very limited.

A Study on the Taxation on the Foreign ETF : Focusing on ETF investment of pension funds

본 연구는 최근 과세상의 이슈가 증가하고 있는 상장지수집합투자기구(ETF: Exchange Traded Fund, ‘이하 ETF’라 함)의 과세상의 문제점과 과세 개선방안을 연기금을 중심으로 모색해보고자 한다. 현행 세법에서는 ETF 거래를 함에 있어 상장 장소에 따라 소득구분이 달라지며 역외 ETF의 법적지위에 따라 소득구분이 달라지게 된다. 또한, 연기금의 외국납부세액공제 적용에 문제점이 있다. 이에 따라 국내 상장 해외 ETF와 해외 ETF의 해외 ETF 투자에 따른 조세취급이 달리 적용되고 있어 고액자산가의 조세회피의 가능성이 존재하게 된다. 이를 해결하기 위해서는 양자 간의 과세취급을 동일하게 할 필요가 있다. 본 연구에서 주장하는 방안은 다음과 같다. 우선, 해외 상장지수집합투자기구에 대한 과세상의 취급과 국내 상장지수집합투자기구에 대한 과세상 취급의 차이로 인하여 국내 상장형 ETF가 위축될 것이므로 이에 대한 개선이 필요하다. 둘째, 양자 간 과세상의 취급이 상이하여 조세회피가 발생하고 있으므로 이에 대한 개선이 필요하다. 셋째, 양자 간의 소득을 배당소득으로 통일되게 과세하거나 국내 상장 해외 ETF와 역외회사형 ETF 모두 양도소득세로 과세하는 통일된 과세취급 방안이 필요하다고 본다. 본 연구에서는 ETF의 과세와 관련하여 과세관청과 납세자 간에 발생하는 조세분쟁의 이슈를 파악해보고 이를 통해 상장지수집합투자기구(ETF)의 분쟁이 재발하지 않도록 현행 해외 ETF 투자에 따른 문제점과 개선방안에 대해 살펴보았다는 점에서 의의가 있다.This study aims to focus on the taxation problems and measures to improve taxation of the Exchange Traded Fund (ETF), which has recently seen an increase in taxation issues. Under the current tax law, income classification will vary depending on the place of listing and income classification will vary depending on the legal status of offshore ETFs. In addition, there is a problem with the application of foreign tax deductions for pension funds. As a result, tax treatment for investments in overseas ETFs by domestic-listed overseas ETFs and overseas ETFs is applied differently, which will lead to the possibility of tax evasion by high-value asset owners. To solve this problem, it is necessary to equalize the handling of taxation between the two countries. The proposed measures in this study are as follows. First of all, it is necessary to improve the domestic listed ETF because the difference between taxable handling of overseas listed index aggregation and taxable handling of domestic listed index aggregation entities will shrink. Second, tax avoidance is occurring due to different taxation treatments between the two countries, and this needs to be improved. Third, we believe that a unified taxation method is necessary to assess bilateral income as dividend income or to assess both domestic listed overseas ETFs and offshore ETFs as capital gains taxes. This study is meaningful in that it identified the issue of tax disputes between the tax authorities and taxpayers regarding the taxation of ETFs and examined the problems and improvements of current overseas ETF investment to prevent disputes from happening again.