Pension Fund Investment Research Articles

PENSION FUND INVESTMENTS: AN INITIAL GEOGRAPHIC ASSESSMENT

Despite the importance of interregional shifts of capital in contributing to patterns of regional development, pension funds, a large and growing source of capital in the world, have received limited empirical investigation by geographers. An initial assessment of the geographic impact of selected pension fund investments controlled by the State of Wisconsin Investment Board (SWIB) is presented. A simple investment allocation model is employed to address several research questions. Findings indicate changes in investment categories over time and suggest interregional investment shifts that fail to fall neatly along Sunbelt/Snowbelt lines. Recent SWIB investments may be undercutting the state's competitive position with other – and in some cases Sunbelt – states.

A Note On the Attitude of Pension Fund Investment Managers toward Mortgage-Backed Securities

Mortgage-backed securities (MBS) have been successful in attracting a broad variety of financial institutions to invest in the mortgage market. By attracting a variety of new types of investors to the mortgage market and by integrating the mortgage market into the more highly developed corporate capital markets, the issuance of mortgage-backed securities resulted in both enlarging and stabilizing the flow of mortgage funds. However, pension funds, the largest source of new long-term capital in the United States, invest less than 5% of their assets in mortgage- backed securities. This study reports on a survey of investment manager attitudes toward mortgage-backed securities. The results show that managers, as a whole, are not enthusiastic about increasing mortgage holdings because of the lack of call protection and other complexities associated with the mortgage-backed securities.

Managerial Risk Preferences, Real Pension Costs, and Long-Run Corporate Pension Fund Investment Policy

This paper presents a new methodology for determining long-run corporate pension fund investment policy for a salary-based defined benefit pension plan. A mean-risk dominance model is developed to choose among the ex ante distributions of pension costs. The model identifies the optimum pension portfolio mix that is consistent with the cost objectives of the plan. The optimum mix consists of a minimum investment in stocks, ranging from a low of 40 percent to a high of 100 percent, depending on the risk preferences of the decision agent and corporate pension cost policies. The results are not sensitive to the age structure of the plan population.

Capital Gains Exemption And Minimum Tax - Mixed Signals From Ottawa

Abstract The "tax simplification" bandwagon which Ottawa seemed to favour in recent years has suffered a setback. Two significant tax measures tabled by the Minister of Finance in 1985 are clearly contrary to any previous notification from Ottawa that Simplification of the income tax legislaion was acknowledged to be a desirable objective. The legislation to implement the $500.000 capital gains exemption and the minimum tax rules may serve to satisfy political and other whims, but arguably accomplish little else, except to unnecessarily complicate this country's income tax law. Introduction The Federal government recently released a number of documents outlining proposed changes to the Income Tax Act. First, on November 26, Bill C-84, the legislation to implement most of the changes announced in the May budget, was introduced in Parliament. At the same time related draft regulations were released. This was followed, on December 2 by a Notice of Ways and Means Motion proposing certain changes in the taxation of flow through shares. On December 4 the government released its minimum personal income tax proposals. Certain anti-avoidance provisions dealing with the wind-up of partnerships and pension fund investments were also outlined at that time. The changes of broadest interest are the $500,000 capital gains exemption, and the imposition of a minimum income tax. The capital gains exemption will be available to Canadian resident individuals for 1985 and subsequent years in the amounts originally proposed. However, a number of complex anti-avoidance rules are proposed in an attempt to ensure that the exemption is not abused. The minimum tax provisions impose an alternate tax of about 25% on income computed using a modified definition which eliminates a number of the deductions, exemptions and tax credits currently available. Individuals and trusts would pay the greater of the minimum tax and the regular tax. The new legislation is lengthy and complex and will profoundly affect the future tax planning of Canadians. Many traditional methods of personal income tax minimization will no longer be possible or effective. The rules of the game have changed and future planning should be undertaken cautiously. Capital Gains Exemption As proposed in the budget, net capital gains realized by individuals resident in Canada throughout the taxation year will be exempt up to a lifetime limit of $500,000 ($250,000 of taxable capital gains). The discretionary deduction in computing taxable income will be phased in as follows: Equation (available in full paper) The deduction generally applies to all capital property owned by Canadian resident individuals, but not by trusts. It will also apply to gains realized in a partnership and generally to gains designated by a trust. Each individual will be required to determine an annual gains limit and a cumulative gains limit to measure entitlement to the exemption. Individuals are required to report all taxable capital gains and claim a deduction for exempt gains in computing taxable income. An individual who fails to report a gain knowingly or under circumstances amounting to gross negligence is denied the subsequent deduction of that gain.

The Economic Function of Underfunded Pension Plans

The Economic Function of Underfunded Pension Plans

Creating Jobs through Pension Fund Investments in Real Estate: Innovations from California

There has been a significant amount of public attention on the need to create more and better jobs for American workers. Related to this issue is the need to identify investment sources to revitalize the nation9s economy. Until the current job crisis occurred, very little attention was given to the workers9 own funds (their pensions) as a source of the investment capital required to preserve existing jobs and/or provide opportunities to create new employment. This article describes recent attempts and innovative approaches by California construction and public-employee unions to expand their investment portfolios to include specific job-creating real estate investments through a new development foundation.

The Matching of Assets to Liabilities

1.1. The concept of the matching of assets to liabilities is fundamental in matters of finance. In its broadest sense matching is relevant both to the investment of life office and pension funds and to actuarial calculations in relation to those funds.

The matching of assets to liabilities

1.1. The concept of the matching of assets to liabilities is fundamental in matters of finance. In its broadest sense matching is relevant both to the investment of life office and pension funds and to actuarial calculations in relation to those funds.1.2. Matching is inherently connected with the uncertainty of future conditions, as measured by such indicators as rates of interest, inflation and currency exchange. It is when conditions do not work out as hoped for or expected that the risks associated with mis-matching can materialize. Whether considering investment policy or an actuarial calculation it is important that the nature of a portfolio which minimizes these risks be appreciated, and yet it is often difficult to specify such a portfolio with precision. This may not be a source of difficulty in practice when the judgement of the actuary is applied to the problem in hand, but there is evident scope for refinement of the concepts.

“Is a pension fund's investment yield influenced by the size of the fund's assets?”

1 ABSTRACTThe question is occasionally asked whether the investment yield achieved on the assets of a pension fund in South Africa is liable to be influenced, adversely or otherwise, by the size of the fund's assets.Statistical tests conducted overseas have tended to suggest that there is no noticeable correlation between size and yield. Nevertheless it seemed that an investigation could with advantage be carried out on the basis of South African conditions, to establish whether any different result would emerge here.This paper sets out the results of such an investigation. They point to the same general conclusions as those arrived at overseas, but in the process certain pertinent questions arise.

Pension Funds and local authority investments

Pension Funds and local authority investments

Where will the Money Come From?

A host of extremely critical challenges is facing the housing industry. Inflation and volatile interest rates have seriously disrupted the nation's mortgage finance and delivery system. Sources of funds to the traditional suppliers of mortgage credit have become scarce. The ability of consumers to afford housing has been reduced by escalating prices and declining real incomes. As a result, the mortgage finance industry is in a period of transition to new types of mortgage instruments and new sources of money for mortgages. Among these new sources are the nation's pension funds. Pension funds had been effectively excluded from extensive residential mortgage investments, but new changes in Labor Department Employee Retirement and Income Security Act (ERISA) regulations could open the way for billions of dollars in private pension fund investment in mortgages. Much of this investment will come through an expanded national secondary market with a conventional mortgage-backed security. Mortgage bankers will be in the forefront of these developments.

Measurement of Pension Fund Investment Performance.

In the United States the theoretical and practical aspects of the measurement of investment performance have been well researched, and the investment managers and pension fund trustees are accustomed to having a battery of statistics available on the performance of a pension fund.By contrast, in the United Kingdom, attention has only really been given to this subject in this decade. It has taken time for both investment managers and trustees to appreciate the need to measure performance and to move away from a solely qualitative assessment of the ability of investment managers to one involving a quantitative element.There are just a few papers by U.K. authors on the investment performance of pension funds and the Institute has discussed the subject only once. This was in November 1976 when J. P. Holbrook presented a comprehensive paper covering both theoretical and practical aspects of performance measurement.

Immunization of Pension Funds and Sensitivity to Actuarial Assumptions

Changes in rates of return affect both the assets and liabilities of a pension fund. If these assets and liabilities are in a proper relationship with each other, however, the pension fund can be irnmunized from the change in rates of return. The cornerstone of the immunization strategy is management of the duration, or weighted average life, of the asset portfolio. This paper discusses some of the factors to be considered in immunizing a medium-sized pension fund, including whether immunization is in fact a desirable strategy. A pension fund is subject to risks on both the asset and liability sides of its balance sheet. Risks on the liability side relate to the probability that the amount of pension benefits actually payable (ex post) will differ from the amounts expected to be payable (ex ante) based on actuarial calculations. Initial assumptions about employee turnover rates, mortality rates, or salary scales may turn out to be incorrect. Risks on the asset side relate to the probability that assets available for making pension payments as they become due (ex post) will differ from the amounts expected to be available (ex ante). Initial assumptions about the rate of return to be earned on pension fund investments may turn out to be wrong (due either to superior or poor investment decisions by the fund administrator or to unexpected changes in marketwide rates of return). Also, the assumed level of operating costs (such as for actuarial, legal, developmental, financial, or administrative services) may turn out to be incorrect. These risks are not entirely independent, nor are they of equal importance. Some of the risks, such as unexpected changes in operating costs, are subject at least partially to the control of the fund administrator. Others, such as changes in rates of affecting all investments, are related to Richard J. Keintz, Ph.D. and CPA, was the Deputy Commissioner of Insurance, State of Wisconsin, when the article was written. Currently he is Vice President-Director of Research, the CUNA Mutual Insurance Society, Inc., in Madison, Wisconsin. He was associated with Touche Ross and Company and later served on the faculty of the University of North Carolina at Chapel Hill. Clyde P. Stickney, DBA and CPA, is an Associate Professor of Accounting, Amos Tuck School of Business Administration, Dartmouth College. He has served oIn the faculties of the University of Chicago and the University of North Carolina at Chapel Hill. The authors acknowledge the helpful and thought-provoking comments of Roman L. Weil and two anonymous reviewers. 1 The term market rate of return' is used instead of interest rate to reflect the fact that pension funds invest in several types of investments (common and preferred stock, real estate, and fixed dollar commitments) and not just fixed dollar commitments.

Portfolio Management for Pension Funds

The implications of modern portfolio theory for pension fund investment management are examined and compared with actual behaviour. It appears that the extent to which pension funds diversify goes far beyond that required for risk reduction, and therefore possible alternative motives are suggested. There is also some evidence of excessive equity trading.

Principles of Pension Fund Investment. By William G. Nursaw. [Hutchinson, London, 1975

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Principles of Pension Fund Investment by William G. Nursaw, F.C.I.S., A.C.I.I., F.I.Arb., F.S.S. (Pp. 176. Hutchinson. £8.50)

Principles of Pension Fund Investment by William G. Nursaw, F.C.I.S., A.C.I.I., F.I.Arb., F.S.S. (Pp. 176. Hutchinson. £8.50)

Pension Fund Investment Management.

Pension Fund Investment Management.

A Decision Rule for Determining Pension and Endowment Funds' Portfolio Mix

Although no mechanical solution to the problem of determining optimal timing for purchases and sales of common stocks and bonds has been found, this article proposes a potentially useful framework for analysis of the problems faced in the investment of pension funds.

BRIEF NOTES ON BOOKS RECEIVED

Books reviewed in this article: Pension Fund Investment Management (C. F. A. Monograph Series, No. 3: Proceedings of a C.F.A. Research Seminar, September 13–14, 1968, Charlottesville, Virginia). The C.F.A. Research Foundation. Richard D. Irwin, Inc. The Dow Theory and the 70‐Year Forecast Record. By Perry P. Greiner and Hale C. Whitcomb. Selection of Securities: Technical Analysis of Stock Market Prices. By A. J. Lerro and C. B. Swayne, Jr. D. H. Mark Publishing Co. Corporate Financial Reporting: Conflicts and Challenges. A SymposiumM. John C. Burton, ed.

BRIEF NOTES ON BOOKS RECEIVED

Books reviewed in this article: Pension Fund Investment Management (C. F. A. Monograph Series, No. 3: Proceedings of a C.F.A. Research Seminar, September 13–14, 1968, Charlottesville, Virginia). The C.F.A. Research Foundation. Richard D. Irwin, Inc. The Dow Theory and the 70‐Year Forecast Record. By Perry P. Greiner and Hale C. Whitcomb. Selection of Securities: Technical Analysis of Stock Market Prices. By A. J. Lerro and C. B. Swayne, Jr. D. H. Mark Publishing Co. Corporate Financial Reporting: Conflicts and Challenges. A SymposiumM. John C. Burton, ed.