Public Sector Pension Funds Research Articles

Erformance of Public Sector Pension Funds in India- A Study through UTI Mutual Fund

erformance of Public Sector Pension Funds in India- A Study through UTI Mutual Fund

Fiduciary Activism From Below: Green Gentrification, Pension Finance, and the Possibility of Just Urban Futures

This article investigates the evolving concept of fiduciary duty and its role in Canadian public sector pension funds’ environmental, social, and governance (ESG) investing practices. It contributes to the literature in the distinct but related fields of environmental gentrification and urban climate finance by bringing fiduciary debates into sharper focus. Engagement with issues surrounding investors’ legal and ethical duties to invest responsibly can contribute to an enhanced understanding of the global and local mechanisms of production and reproduction of environmental and spatial inequalities, as well as strategies for creating more than just urban futures. ESG, a calculative and modelling technique used to manage investment risks, overwhelmingly focuses on physical and financial climate risks (e.g., infrastructure assets and risks associated with regulatory change). This privileges the instrumental, Cartesian view of the environment as severed from its social, historical, and relational character, a perspective that has been thoroughly critiqued in the environmental/ecological gentrification literature. However, ESG investing has also introduced a potentially productive uncertainty in the realm of financial expertise; it forces questions about what it means to invest deferred compensation in the “best interests” of workers and retirees. This article has three interrelated aims. First, it reviews recent trends in environmental gentrification and urban climate finance literature to highlight an emerging but underdeveloped engagement with ESG and fiduciary duty. Second, it shows how the rise of ESG has revealed a vulnerability in the hegemonic profit maximization interpretation of fiduciary duty and invited further, open-ended, critical-theoretical engagements with the concept of the fiduciary and their responsibilities. Finally, it offers the concept of “fiduciary activism from below” to explore how grassroots agency increasingly stages a direct confrontation with corporations, institutional investors, and shareholders in the struggles over urban space and resistance to environmental and infrastructural violence.

Governance, Performance, Costs and Policy Issues: An Analysis of Six Large (Big Six) Public Sector Pension Funds in Canada

Across the world, there has been a significant growth in financial assets managed by public sector entities including pension funds of public sector employees. Canada is no exception. The six largest public-sector pension funds in Canada collectively manage/invest approximately one trillion dollar (Canadian) of assets for providing retirement income to the retirees. The paper analyses the both the governance and most importantly, performance and costs of these big six pension funds. We argue that the information provided by these funds require considerable improvement in consistency and depth to evaluate their performance and, thereby, indirectly the associated governance. This is especially important as these funds are increasingly investing in “non-tradeable” and illiquid assets and are also asked and encouraged by their respective governments to invest in “publicly desirable” investments. In addition, their absolute and their relative size of their investments in publicly listed corporations also raises some governance issues.

Reform of the Death Benefit Provisions in Lesotho's Public Sector Pension Fund: Lessons from South Africa and Swaziland

The paper discussed the problems associated with the implementation of the death benefits provisions in South Africa, which were later adopted by the authorities in Lesotho. We reflect on these problems and discuss how these problems could be resolved in Lesotho.

Infrastructure: Deciding Matters

This study builds upon the understanding of infrastructure developed in our paper “Infrastructure: Defining Matters” with the aim of translating it in practical terms using a more detailed formulation of the schematic for pension fund investment decision-making which we outlined in that paper. Th e method for our doing so is to use as a reference an in-depth review of the decision-making process of one of the leading, if not the leading U.S. public sector pension fund on many matters, including infrastructure investment. The text proceeds as follows: First, we determine how the fund articulates what it understands infrastructure to be or entail. Second, we review what it states are its strategic objectives for infrastructure investment. Third, we canvas its stated perceptions or beliefs as to the financial characteristics of infrastructure investments. Fourth, we review in extensive detail the approaches and parameters according to which the fund seeks to achieve those strategic objectives. Fifth, we compare these with the ones embodied in a modified and refined version of the linked categories formulated in the paper. We suggest that while those approaches and parameters are useful they embody multiple and overlapping characterizations not conducive to systematic analysis. We point out that in terms of substantive content they are encompassed by but do not exhaust ones associated with the linked categories, such as Supply – Exogenous Constraints on Competition, Enterprise – Finance, Non-Enterprise Stakeholders. We discuss why we think the categories could be a more useful tool by which to describe and assess the fund’s infrastructure investments. Sixth we explore more closely certain aspects of the actual investment decisions which the fund has made. We start by detailing as best we can determine not only the vehicles through which the fund has invested but also all the particular investments made by any of the vehicles at the level of the infrastructure-related enterprise. We then consider two of the fund’s investments at the enterprise level, in one case according to the certain of the parameters which the fund has set forth but then in both cases based on the revised version of the linked categories. Finally, we summarize key observations made in the course of the foregoing analysis and off er conclusions which might be drawn from it. These which point to ways the approach we suggest might contribute to better decision-making with respect to infrastructure investments.

Infrastructure: Doing What Matters

At the core of our paper Infrastructure: Defining Matters was the notion that a proper understanding of what “infrastructure” means is critical not only for those who make decisions as to whether, on what terms, and in what ways investments in infrastructure might be made but also for those whose lives and livelihoods – on an individual and collective basis – are affected or intertwined with those decisions. The definition we offered was one which focused on people; their individual and collective needs with a central concern with their ability to thrive in the society in which they live and as they would have that society be; the diverse ways in which it “looms large”; and with an eye less to the structures and facilities typically associated with infrastructure and more to the (infrastructure-related) enterprises, the human undertakings organized in diverse ways to meet those needs. Given our ultimate interest in providing a resource for pension fund investors we formulated what we viewed as a useful narrative (informed by that understanding) by which “any potential investment in an [infrastructure-related] enterprise and its calculus of financial risk and reward are ultimately linked through a chain of factors to the particular infrastructure-related goods and services that are produced and the means for doing so.” Not surprisingly that chain included both considerations relating not only to staff at the enterprise level as well other key suppliers and providers of highly inter-related services to that enterprise but also those individuals or groups who might be viewed as non-enterprise stakeholders.In our next paper, Infrastructure: Deciding Matters, our aim was to translate the foregoing formulation into more practical terms as it related to pension fund investment decision-making. More particularly it sought to offer a critical though constructive analysis of that process as defined by a leading U.S. public sector pension fund both in terms of the chain of factors discussed in Defining Matters and of the actual investments which that fund made, with an emphasis on the infrastructure-related enterprises which were represented in its portfolio. Among that fund’s statement of strategic objectives for its infrastructure investments was a commitment to “responsible investment.” Although it was articulated there in terms of responsible labor and environmental practices, the overall parameters the fund set for its decision-making encompassed the wider range of considerations referred to at the end of the preceding paragraph.In this paper our goal is to press the conversation about such considerations further. That is, not only in the case of that pension fund but also more generally, pension funds and other investors with similar commitments frame them in relatively general terms, not infrequently with references to broad-gauge formulations of organizations in which they participate which seek in certain ways to aid one another in the advance of those commitments. However, despite such efforts there has been, in our view, a lack of relevant and useful literature which explores in a serious and thoroughgoing way what are the relatively “hands-on” tasks which must performed well (enough) which offer a realistic prospect of meeting those obligations. It is the goal of this paper to contribute to that literature, building on the ideas and narratives of our preceding two ones.

Regulation of Private Equity in the U.S. Reveals Deep Problems for Investors

Probably no one is more shocked than the partners in the 3,300 private equity fi rms headquartered in the U.S. to learn that the weak oversight of their activities mandated in the wake of the recent fi nancial crisis may have actual consequences for them. About 1,100 partners in these private equity fi rms serve as the General Partners (GPs) of the PE investment funds their fi rms sponsor. These GPs are advisors to the PE funds and make all decisions about the funds’ investments. Public sector and private pension funds, university endowments, sovereign wealth funds and very wealthy individuals are the Limited Partners (LPs) or investors in the PE funds. They typically commit 98 percent of the capital in a PE fund, with the GPs (i.e. the PE fi rm partners) contributing the remaining two percent. The LPs pay management fees to the GPs for managing the fund and its investments.

The Impact of Shareholders on Executive Pay

Those who own shares of stock in a company are called shareholders. As such they are in part owners of the company. Typically, stock of large companies is in the hands of institutional investors: mutual funds, private money managers, and public sector pension funds. It is the latter who are long-term investors. Stock is typically sold on a stock exchange (such as the New York Stock Exchange). Shareholders elect members of the company’s board of directors and vote on other matters needing their vote. The 2010 Dodd Frank Act requires that companies submit to shareholders a non-binding vote on executive pay. Since shareholders seek an appreciable return on their investment, they are interested in tying executive pay to shareholder value (stock price and dividends). Shareholder watchdogs review and comment on proposed company actions including executive compensation and anti-takeover devices. Shareholders have a high interest in executive benefits and short as well as long-term incentives. More specifically, they do not like: payouts based on internal goals (ignoring shareholder value); restricted stock awards not tied to performance; stock option reloads; omnibus plans; stock options without performance factors; and evergreen plans.

Vulnerability of pension fund balances

Although the Icelandic general labour market pension funds are built on the proviso that pension schemes are fully funded these funds are still grappling with the devastating financial effects of the 2008 economic collapse that rendered most of them in a significant actuarial deficit. The public sector pension funds are based on an employer guarantee that makes up for any lack of funding that historically has been quite significant. We identify the relatively high actuarial discount rate and increasing longevity as two factors that add to the vulnerability of the Icelandic pension system. We present a stochastic model in order to obtain reasonably sound estimates of the effect of revising such key parameters of the actuarial assessments of the pension funds and thus obtain a view of the viability of the Icelandic pension system when confronted with the potential necessity of such parameter shifts. We present results of stochastic simulations of this models made to assess effects of changes in these major financial and demographic assumptions in actuarial evaluations of pension fund balances. Our results suggest that the Icelandic pension funds may be significantly less well funded than is generally perceived.

Public Sector Pension Funds in Australia: Longevity Selection and Liabilities

This paper assesses the cost and risk faced by public sector, defined benefit plan providers arising from uncertain mortality, including longevity selection, mortality improvements, and unexpected systematic shocks. Using longitudinal micro data on Australian pensioners, we quantify the extent of longevity selection at both aggregate and scheme level. We also show that as the age-membership structure in a pension scheme matures, scheme-specific longevity selection risk and systematic shocks become quantitatively more important and have larger consequences for plan liabilities than aggregate selection risk or the impact of mortality improvements.

Icelandic Public Pensions: Why time is running out

The aim of this paper is to analyse the Icelandic public sector pension system enjoying a third party guarantee. Defined benefit funds fundamentally differ from defined contribution pension funds without a third party guarantee as is the case with the Icelandic general labour market pension funds. We probe the special nature of the public sector pension funds and make a comparison to the defined contribution pension funds of the general labour market. We explore the financial and economic effects of the third party guarantee of the funds, their investment performance and other relevant factors. We seek an answer to the question why time is running out for the country’s largest pension fund that currently faces the prospect of becoming empty by the year 2022.

The Changing Role of Hedge Funds in the Global Economy

A recent Washington Post editorial, “The perilous state of pensions,” opined “…public sector pension funds typically incorporate optimistic assumptions about the returns they will earn on their investments…(reducing the assumptions)…would have exposed the emptiness of their past promises.” In fact, a variety of institutions, from university and philanthropic endowments to public and private pension funds, have all endured a difficult and volatile period in the financial markets. The case of public pension funds is perhaps the best-known example of this problem. Against this backdrop, a rising number of these institutions are devoting larger shares of their portfolios to hedge funds. Once considered an elite investment for wealthy individuals, a majority of hedge funds assets - by one independent measure 61 percent - are now owned by institutional rather than private investors. Thus, the role of hedge funds in the economy is changing as new classes of institutional investors come to embrace them. As hedge funds accumulate a longer investment track record on which to be judged, and, following the passage of the Wall Street Reform and Consumer Protection Act (Dodd-Frank), the role of hedge funds in the financial system is an important consideration.In this paper, I examine the confluence of these issues. The paper explains the objectives of hedge funds, estimates their potential value to institutional portfolios, and examines some of the basic public policy concerns surrounding the role of hedge funds in financial markets. Campbell & Company, one of the world’s innovators in quantitative model development, supplied the allocation modeling and additional data necessary to complete my research and analysis. Hedge funds have evolved from an elite investment to a standard component of investment portfolios, and in so doing, offer institutional investors, such as pension funds, the opportunity to improve returns. The modeling performed for this analysis suggests that a modest allocation to hedge funds would improve the returns to public pension funds by approximately $13 billion annually. Moreover, the track record of recent years further illustrates that hedge funds have not been a source of greater systemic risk - rather than “too big to fail,” they are generally not an important source of systemic risk.

Building Value and Reputation with Stakeholder Management: The Case of Washington State Investment Board

The growing literature on pension governance identifies desirable governance characteristics, and links them to improved organizational performance. However, actual pension plan organization and governance are often a result of a series of historical events and cultural factors. Governance best practices that could feasibly be implemented in one country might be impractical in another. This article focuses on one specific element of governance: stakeholder management. We show that this element has played a critical role in moving Washington State Investment Board toward the optimal end of the governance scale within the legal and historical constraints within which public sector pension funds operate in the United States.

US Pension Funds' Labour Friendly Investments

Pension funds can be thought of as deferred workers wages. In many cases occupational pension funds have been established at the bargaining table through union representation. While all pension funds are established for the benefit of the pension plan beneficiaries, these deferred workers wages also have a significant impact on the communities in which they are invested. Labor friendly investments seek to direct the impacts of investment in a manner that creates strong and healthy communities and supports union or fair wage employment practices. Labor friendly pension funds in the US are generally either Taft-Hartley pension plans (jointly trusteed or union trusteed multi-employer plans) or public sector pension funds with a significant presence of union trustees. These funds often have a range of labor friendly policies and programs aimed at building strong and healthy communities. Such programs include responsible contractors' policies, responsible investors' policies, and specific allocations for targeted (or economically targeted) investments in their investment portfolio. These targeted investments often require union built construction (in the case of real estate or fixed income mortgage backed securities) or are aimed at job creation and retention (in the case of private equity investments). This paper explores the evolution of labor friendly US investments by pension funds in the period since the downturn of the financial markets in 2001. It argues that both pension funds and investment vehicles that bring intentional targeting to their investments are becoming increasingly sophisticated financial players. Labor friendly investments that focus on risk adjusted rates of return as the driver for investment are increasingly able to point to strong track records that encourage a wide range of pension fund investors to engage with these vehicles and practices.

South Africa’s largest public sector pension funds: a collective developmental role?

As significant long-term domestic investors, South Africa‟s largest public sector pension funds have an interest in helping South Africa move onto a sustainable development path. However, this paper tentatively concludes that, although there is a possible collective developmental role for these funds, this is unlikely to occur unless leadership from government or the funds emerges. If a leadership role is chosen, government should probably focus on a transition management approach to sustainable development, trustees on the implementation of long-term investment policies, and the members of the investment community on a high leverage initiative, possibly linked to the Financial Sector Charter review. Some of the tentative conclusions reached in this paper also provide pointers for overseas pension funds and their stakeholders. Firstly, governments could support collective action between the largest public sector pension funds globally, and in return develop an unusually powerful long-term voice in support of a transition to sustainability. Secondly, a more significant role for these funds will highlight the issue of prioritisation, and the development of legitimate processes is likely to be needed. Thirdly, full implementation of genuinely long-term investment policies will probably lead to significant changes in the role funds play in the investment industry, possibly including the establishment of their own investment co-operatives.

Public Pension Fund Power

The quotation is from Mr. Greenspan9s testimony to Congress in 1999 on the Administration9s proposal to invest a component of the Social Security Trust Fund in equities. As a response to that testimony, we were asked by a number of U.S. public sector pension funds to conduct a study into Mr. Greenspan9s assertion. That study concludes that a sample of 34 U.S. public sector funds marginally outperformed a sample of 51 U.S. corporate funds on a cost- and risk adjusted basis over the 1994-1997 period (see Ambachtsheer, Hawn, and Scheibelhut [1999]).

Publicly sponsored regional venture capital: what can the UK learn from the US experience?

National venture capital activity in both the US and UK is concentrated in just a handful of regions. As a consequence, there are perceived to be local gaps in the availability of venture capital. Governments in both countries have sought to fill these gaps using taxpayer funds, although in recent years the policy emphasis has shifted in favour of measures to stimulate local activity by private sector venture capitalists. This paper addresses three questions. First, can locally targeted funds be an additional profitable investment opportunity for institutional investors including public sector pension funds? Second, to what extent is there a conflict for those sponsoring, or providing funding to, locally targeted funds betweenfinancial investment returns and economic development objectives? Third, what are the best mechanisms to balance the interests of the three parties-those with responsibility for regional development, investment managers within funding institutions and venture capitalists-while attempting to build a sustainable local venture capital industry? The paper concludes that given a clear-sighted approach to the goals of both parties, locally targeted private equity funds can indeed be an additional profitable investment opportunity for public sector funds. Good practice in sponsorship principles, as distilled from the American experience, should be largely applicable in Britain. However, the mechanisms will not easily translate from the US to the UK.