Pension Fund Management Research Articles

Chilean pension fund managers and corporate governance: The impact on corporate debt

In this paper we analyse the relationship between the investment of Pension Fund Managers (AFPs) and the cost of corporate debt (public and private). Using a sample of 93 non-financial Chilean listed firms between 2009 and 2014, we find that AFPs increase the probability of issuing bonds. Moreover, in line with our crowding out hypothesis, we show that AFPs increase the cost of bank borrowing. In line with the monitoring view, we find that AFPs decrease bond yields. On average, our results suggest that AFPs improve corporate governance by influencing information disclosure and by reducing the intensity of lending relationships with banks.

Optimal investment of DC pension plan under short-selling constraints and portfolio insurance

In this paper we investigate an optimal investment problem under short-selling and portfolio insurance constraints faced by a defined contribution pension fund manager who is loss averse. The financial market consists of a cash bond, an indexed bond and a stock. The manager aims to maximize the expected S-shaped utility of the terminal wealth exceeding a minimum guarantee. We apply the dual control method to solve the problem and derive the representations of the optimal wealth process and trading strategies in terms of the dual controlled process and the dual value function. We also perform some numerical tests and show how the S-shaped utility, the short-selling constraints and the portfolio insurance impact the optimal terminal wealth.

Optimal Control of DC Pension Plan Management under Two Incentive Schemes

Since the late 1990s, a performance fee arrangement has been approved as a managerial incentive in direction contribution (DC) pension plan management to motivate managers. However, the fact that managers may take undue risk for the larger performance fees and thus reduce members’ utility has been a subject of debate. As such, this study investigates the optimal risk-taking policies of DC pension fund managers under both the single management fee scheme and a mixed scheme with a lower management fee, as well as an additional performance fee. The analytical solutions are derived by using the duality method and concavification techniques in a singular optimization problem. The results show the complex risk-taking structures of fund managers and recognize the win-win situation of implementing performance-based incentives in DC pension plan management. Under the setting of geometric Brownian motion asset price dynamics and constant relative risk aversion utility, the optimal risk investment proportion shows a peak-valley pattern under the mixed scheme. Further, the manager gambles for gain when fund wealth is low and time to maturity is short. As opposed to the existing literature, this study found that the risk-taking policy is more conservative when fund wealth is relatively large. Furthermore, the utilities of the manager and members could both be improved by appropriately choosing the performance fee rate.

Performance of active and passive management of Slovak's pension funds in return-risk space

The goal of the paper is to quantify the performance of actively and passively managed pension funds within the second pension management pillar in Slovakia during the period 2012-2017 in return-risk space and to provide an answer to the question: Can actively managed funds beat passively managed funds in Slovakia? The results of this paper are compared with results in other research from different countries. The results indicate that actively managed funds statistically significantly do not beat performance of passively managed funds. The results are in agreement with research from USA, Republic of Korea and Russia, where active management does not beat performance of passive investment over the long period. The results confirm that neither Slovak pension actively funds cannot beat performance of passively managed funds. This empirical research represents the support and recommendation for the Slovak government to shift investment policy from active management to passive management.

Corporate Govarnence and Welfare/Corporate Governance in Turkey

To this day, in the 21st century, after discussing the theory of organizational theory, the Anglo-Saxon approach, which primarily focuses on protecting the shareholder rights, and not only the shareholder rights, but also the protection of the rights of all beneficiaries, we see it going on. Good corporate governance is not an end in itself. It is a tool for creating market confidence and business integrity required for companies that need access to equity for long-term investment. Access to equity is especially important for balancing the growing companies and increasing indebtedness for the future. The principles also relate to inclusiveness. Today, the savings of millions of households in the world are directly or indirectly in stock markets. In addition, publicly traded companies provide more than 200 million jobs. The principles also address the rights of these stakeholders and their participation in the creation of wealth.Corporate governance is recognized as one of the standards for sound financial systems and is used by FSB, G20 and OECD members. It also forms the basis of the OECD guidelines on management of insurance companies and pension funds and the reference of reforms in many countries, published by the Basel Banking Supervision and Audit Committee. OECD corporate governance principles; I) Ensuring the basis of effective corporate governance framework II) Shareholders’ rights and fair treatment and basic partnership functions III) Institutional investors, equity markets and other intermediaries IV) The role of stakeholders V) Public disclosure and transparency. VI) Responsibilities of the Board of Directors In the form of main headlines.This study will try to bring a perspective on the relationship between corporate governance principles and economic development. How its process is managed? The examples of the country will be examined and the effect of this style on the economic life will be examined.

ECONOMIC AND LEGAL ASPECTS OF PENSIONS ON THE BASE OF NORTHERN SUPPLY AND REGIONAL COEFFICIENT IN INTERNATIONAL AGREEMENTS

Agreement on the guarantees of the rights of citizens of CIS countries in the field of pensions, on March 13, 1992 establishes the principles of territoriality: • pension security of citizens of member states is carried out under the laws of the state in whose territory they reside. • all costs of pensions are borne by the state providing the security. The Law of Ukraine «About Compulsory State Pension Insurance» on July 9, 2003 No. 1058-IV and the Law of Ukraine «About Pension Provision » No.1788-XII of November 5, 1991 do not provide for the inclusion of a wage payment of the northern supplement and a regional coefficient. However, in accordance with the Agreement on the Guarantee of the Rights of Citizens of the Member States of the Commonwealth of Independent States in the field of pensions of March 13, 1992 (hereinafter the Agreement), the length of service acquired during the shift-expedition method in the Far North or equivalent areas in the Russian Federation counted to establish the right to a pension. The regional coefficient is an indicator of wage increases to compensate for additional expenses and increased labor costs associated with performing work and living in regions with severe climatic conditions. Currently, district coefficients are 1.1 to 2.0. Regional coefficients are applied to the wages of workers employed in the Far North, Siberia, the Far East, the Urals, and the northern regions of the European part of the Russian Federation. The fixed basic amount of the insurance part of the labor pension, for those residing in the regions of the Far North, is increased by the corresponding district coefficient. The regional coefficient is established by the Government of the Russian Federation for the entire period of residence in these areas. When citizens move to a new place of residence in other areas of the Far North, the size of the insurance part of the labor pension is determined based on the size of the district coefficient at the new place of residence. If you do not take into account the northern allowances, it is important to pay attention to the following inconsistency. The Office of the Pension Fund of Ukraine fulfills the obligations of Ukraine under the Agreement of March 13, 1992. If the Pension Fund Management of Ukraine does not fulfill its obligations, Ukraine violates its obligations in an international agreement. If the Pension Fund Management of Ukraine does not fulfill its obligations, Ukraine violates its obligations in an international agreement.   &nbsp

Robust stock and bond allocation with end-of-horizon effects

We propose an approach to portfolio management over a finite time horizon that (i) does not require the precise knowledge of the underlying probability distributions, instead relying on range forecasts for the stock returns, and (ii) allows the fund manager to capture the degree of the investor’s risk aversion through a single, intuitive parameter called the budget of uncertainty. This budget represents the worst-case number of time periods with poor performance that the investor is willing to plan for. An application of this setting is target-date funds for pension fund management. We describe an efficient procedure to compute the dynamic allocation between (riskless) bonds and (riskier) stocks at each time period, and we illustrate the risk-to-time-horizon tradeoff on optimal allocation tables, which can easily be provided to fund participants to help them select their strategy. The proposed approach refines rules implemented by practitioners and provides an intuitive framework to incorporate risk in applications with end of horizon effects. In contrast with existing literature providing robust fund management approaches to mathematically sophisticated finance professionals, our goal is to provide a simple framework for less quantitative fund participants who seek to understand how stock return uncertainty and planned retirement date affect the optimal stock-vs-bond allocation in their portfolio. We extend our procedure to the case when the investor’s wealth is penalized for falling short of performance benchmarks across the time horizon. We also discuss the case where the manager can invest in multiple stocks. Numerical results are provided.

Analisis Penerapan PSAK No. 18 Pada Laporan Keuangan PT. Bank BNI (Persero)

Financial Institution Pension Fund Bank BNI is one of the Banks that organizes a Defined Contribution Pension Program with the main activity of holding a Pension Program whose contribution amount is determined based on the ability of participants. The Pension Program organized by the Financial Institution Pension Fund (DPLK) of BNI provides pension benefits that will be received after participants enter retirement age based on the amount of the contribution, length of participation and the rate of growth of funds during the membership period. Pension benefits are paid on a pension basis with cash refund. As a Pension Fund company, PT. Bank Negara Indonesia (Persero) must refer to the provisions / regulations / standards in the determination and management of pension funds specifically PSAK No. 18 governing the retirement benefit program. Presentation of Retirement Benefit Programs in Pension Fund Financial Reports in 2012-2013 PT. Bank Negara Indonesia (Persero) is in accordance with the Statement of Accounting Standards (PSAK) No. 18. Therefore, this study aims to determine the suitability of the application of Financial Accounting Standard Number 18 on the Reporting of Bank Negara Indonesia Pension Fund (Persero). 
 Keywords: pension fund accounting, PSAK no. 18.

Some Thoughts on Ethical Management of Retirement Pension Fund in Korea

Some Thoughts on Ethical Management of Retirement Pension Fund in Korea

PRE-RETIREMENT PENSION PLANNING AND LIFE INSURANCE PURCHASE AMONG RETIRED CIVIL SERVANTS IN SOUTH-WESTERN, NIGERIA

The study examines the relationship between preretirement pension planning and life insurance purchase with its empirical findings from retired civil servants in Southwestern, Nigeria. Descriptive research design was employed. The study adopted purposive sampling technique. Structured questionnaire was used as a data gathering instrument. 387 respondents were drawn from three Local Government Council Areas from each state. Major statistical technique employed in this study was the Kolmogorov-Smirnov test. Two hypothetical statements were tested. The study recommends that more stringent efforts should be made by insurance practitioners to collaborate with government and other private employers by creating awareness on annuity as the best financing vehicle for retirees to earn gradual income. The regulatory authorities should throw their weight at monitoring any fraudulent activities that may emerge in the retirement risk management process by creating a more reliable data management system that have the capacity to capture any fraudulent attempt or committed fraudulent activities in the Nigerian insurance industry. This research work contributes to knowledge in that it awakes Pension fund managers and Insurance risk managers to be alive to their responsibilities in ensuring that loopholes in the retirement annuity plans are tackled.

Pension fund management with hedging derivatives, stochastic dominance and nodal contamination

The main goal of a pension fund manager is sustainability. We propose an Asset and Liability Management model structured as a multi-stage stochastic programming problem adopting a discrete scenario tree and a multi-objective function. Among other constraints, we consider the second-order stochastic dominance with respect to a benchmark portfolio. To protect the pension fund from shocks, we test the inclusion of hedge financial contracts in the form of put options and, moreover, we stress the portfolio introducing a new scenario tree contamination technique, namely the nodal contamination. Numerical results show that we can efficiently manage the pension fund satisfying several targets such as liquidity, returns, sponsor’s extraordinary contribution and funding gap. Moreover, we test the sensitivity with respect to put option strikes and to the stochastic dominance constraints. Finally, we demonstrate the effect of the scenario tree contamination.

PRODUCT CHOICE UNDER GOVERNMENT REGULATION: THE CASE OF CHILE'S PRIVATIZED PENSION SYSTEM

AbstractChile's individual retirement pension accounts system has been a model for many countries. To limit the riskiness of pension investments, Chile required pension fund managers to deliver returns that are not more than 2% below the industry average. We develop and estimate a model of the pension investment market that allows us to study the impact of minimum return regulation. We find that the regulation leads to higher demand for risky investments, creates incentives to offer riskier portfolios, and leads to higher management fees. However, the regulation also stimulates balance accumulation that ultimately reduces the reliance on government support.

Dream team or strange bedfellows? Complementarities and differences between incumbent energy companies and institutional investors in Swiss hydropower

Institutional investors can potentially be a significant source of capital for financing the energy transition. This is even more important as incumbent energy companies in many European countries struggle to adjust their business model to changing market conditions. This article reports on a choice experiment with pension fund and energy managers conducting 1,129 experimental investment choices in Swiss hydropower. We find that complementarities exist with regard to financing different stages of project development – pension funds are averse to construction and development risk but comfortable in deploying capital to existing projects, while incumbents are willing to invest in all project stages. The two groups show surprising similarities in their aversion to fluctuating electricity prices. When fully exposed to revenue risk, energy firms and pension funds demand a risk premium of 5.98% and 7.94% respectively. For policy makers, this suggests that shielding investors from revenue risk, as has been done with feed-in tariffs for other renewables, might be an effective way of lowering the financing cost of hydropower. When it comes to their preferred co-investors, the two groups express mutual distaste for each other: energy firms would rather invest in consortia with other incumbents, and the same goes for institutional investors.

Pre-commitment and equilibrium investment strategies for the DC pension plan with regime switching and a return of premiums clause

This paper studies an optimal investment problem for a defined-contribution (DC) pension plan during the accumulation phase, where a pension member contributes a predetermined amount of money as a premium and then the manager of the pension fund invests the premium in a financial market to increase the value of the accumulation. To protect the rights of pension members who die before retirement, a return of premiums clause is introduced, under which a member who dies before retirement can withdraw all the premiums she has contributed. We assume that the financial market consists of one risk-free asset and multiple risky assets, the returns of the risky assets depend on the market states, the evolution of the market states is described by a Markov chain, and the transition matrixes are time-varying. The pension fund manager aims to maximize the expected terminal wealth of each surviving member at retirement and to minimize the risk measured by the variance of her terminal wealth, which are two conflicting objectives. We formulate the investment problem as a discrete-time mean–variance model. Since the model is time-inconsistent, we seek its pre-commitment and equilibrium strategies. Using the embedding technique and the dynamic programming method, we obtain the pre-commitment strategy and the corresponding efficient frontier in closed form. Applying the game theory and the extended Bellman equation, we derive the analytical expressions of the equilibrium strategy and the corresponding efficient frontier. For the two obtained investment strategies and their corresponding efficient frontiers, as well as the impact of regime switching and the return of premiums clause on them, some interesting theoretical and numerical results are found.

DETERMINANTS INFLUENCING PENSION FUND INVESTMENT PERFORMANCE IN KENYA

Purpose: The purpose of the study was to investigate the determinants influencing pension fund investment performance in Kenya.Methodology: The study employed a descriptive research design. The study target population was all the 33 registered pension funds in Kenya, and the sample size was 66 senior employees involved in decision making. The study adopted a census approach and therefore data was collected from all the 33 registered pension funds. A questionnaire was used to collect primary data from the selected respondents. The data collected was analyzed using the statistical package for social sciences (SPSS) version 23.0. The software was used to produce frequencies, descriptive and inferential statistics which was used to derive generalizations and conclusions regarding the population. Multiple linear regression model was used to measure the relationship between the independent variables and the dependent variable. The study findings were presented using figures and tables.Results: The study findings revealed a positive and significant relationship between diversification decisions, management competency, investment strategies, regulation compliance and investment performance of pension funds in Kenya.Unique contribution to theory, practice and policy: The study recommended that the management of pension funds should establish a strong organization structure and policy implementation, which will enhance their portfolio composition; the firms should have highly competent management; should incorporate investment literacy and capability programs in their organizations; and should continue adhering to the set regulations.

IPO Mispricing. Evidence from Aftermarket Performance Tests and a Natural Experiment in Poland.

We exploit a quasi-experiment arising from the government-forced changes to the assets under management and investment policy of the Polish pension funds. We test whether this new regulation and its resultant demand shock on the investors’ side, leads to changes in the IPO pricing and the subsequent stock’s performance. We report material and a statistically significant decrease in the IPO proceeds (IPO size) in the post-treatment period equal to over 107 million PLN (34 million USD). We find no empirical evidence that the treatment had a significant effect on the first-day IPO underpricing or on the long-term underperformance. We conclude that the demand shock resulting from the pension system reform that primarily aimed at solving fiscal problems effectively eliminated the so-called ‘pension premium’ of higher IPO valuations. Thus, it indirectly impaired companies’ power of raising money in the public stock market. Furthermore, we report a decrease in the average first-day IPO returns among big issuers that is consistent with the book building literature.

Ownership concentration and market liquidity: Evidence from a natural experiment

Using the merger and acquisition activity among pension fund management companies as a natural experiment, we obtain estimates on the causal link between ownership concentration and secondary market liquidity. Our findings suggest that concentrated ownership structures, via the threat of informed trading, adversely affects stock trading activity.

The Post Retirement Adjustment Challenges Confronting Local Government Employees in Ethiope East Local Government Area of Delta State

The study examined the post retirement adjustment challenges confronting local government retirees in Ethiope East Local government area of Delta State. The study adopted survey in the form of a descriptive study in which data will be collected once across a population through sampling. The research design of this study is a survey based on a structured questionnaire. The study revealed among other things that delay in the payment of retirement benefits represent the highest percentage of post-retirement challenges often faced by local government retirees in Ethiope West local government area of Delta State. Another major post retirement challenges were the absence of a social policies for retirees. It was further discovered that aging/stereotype feeling of neglect, Physical trauma and anxiety arising from absence of income generating activities is a major challenge confronting retirees in Ethiope West local government area of Delta State. Based on the findings of the study, the following recommendations are hereby outline: The Local government Service Commission should establish a mechanism that would be in cooperate with pre-retirement counseling services as well as general retirement issues to equip its employees with the basic knowledge when concerning retirement. Second, retirement planning should begin early in the employees life so that they could save enough before retirement. In this regards, employees should open retirement savings accounts for pension fund administrators of their choice to enable them to save towards their retirement. Third, government should also initiate a social policy for the aged in the society to help cushion the inadequacies often suffered by retirees in the retirement benefit management in Nigeria. More so, the new pension system should also ensure transparent and efficient management of pension funds. Furthermore, employees should be encouraged to develop a savings culture. Above all, government should strengthen the regulatory and supervisory framework and empower it to successfully and effectively check earring pension fund administrators in the country. Finally, employees and retirees should be encouraged to invest in assets and financial instruments so that at retirement they can earn additional income from these assets and financial instruments to supplement their pension income at retirement.

GAINING MARKET SHARE IN EMERGING MARKETS PORTFOLIOS BY MODERATING EXTREME RETURNS: THE CASE OF PERU

Most countries compete for investments from abroad, whether the investment is made directly in the form of new ventures or indirectly through the shares of existing firms that are publicly traded. Both higher returns and lower volatility can attract a higher market share of global stock portfolios constructed by investors seeking positions in emerging markets, depending on the strategy such investors use to build their portfolios. These investors include mutual fund managers, pension fund managers, and savvy private investors. This paper tests three common investment strategies portfolio managers use: A) maximize “risk-adjusted” return based on Modern Portfolio Theory; B) maximize minimum return based on the minimax principal in Decision Theory; and C) maximize “absolute return.” The results suggest that reducing volatility by moderating extreme returns would increase Peru’s share of such portfolios and perhaps be more effective and attainable than increasing overall average returns. Using data from 1995 to 2014 for Peru as a case study, moderating (a form of “winsorizing”) its best and worst returns by 20% would have increased its portfolio allocations from 9.4% to 16.5% for Strategy A managers, and from 0% to 48.5% for Strategy B managers. Strategy C managers ignore volatility and are thus unlikely to be influenced by its reduction. From a policy standpoint, Peru might attain the moderation by adopting more liberal net operating loss carry back and carry forward provisions in the tax code similar to those in the US tax code, though this paper does not provide evidence that such changes would accomplish this result. The positive effect could be lost, of course, if other countries quickly retaliated by changing their own tax codes, but most governments are not known for being nimble when it comes to changing tax codes.

РОЛЬ ЧАСТНЫХ УПРАВЛЯЮЩИХ КОМПАНИЙ В СОВРЕМЕННОЙ ПЕНСИОННОЙ СИСТЕМЕ РОССИИ

The results of the research of the dynamics and structure of investing of pension savings funds by private managers for the period from 2004 to 2017 are presented. The dynamics of the market value of investment portfolios of private management companies, the structure of their investments in various types of assets has been analyzed, the dynamics of changes in the structure of assets for 2004-2017 has been estimated. The nature of the investment strategy of investing the funds of pension savings of private capital has been revealed, as well as the main factors that have influenced the structure of their main investments in various assets. The key tendencies of the development of the mandatory pension insurance system are determined in the course of exercising the functions of trust management of private pension funds by individuals.