Asset Allocation and Bad Habits

JAN 2015


ICPM SPONSORED|RESEARCH PAPER

  • Defined Contribution Plan
  • Internal Swap Market
  • Life-Cycle Theory
  • Pension Fund
  • Wage Return Setup
  • Wage-Linked Exposure
  • Pension Funds

A 1997 investigation into the quality of pension fund governance uncovered a wide-spread board competency problem. This follow-on study analyzes the findings of a new survey on pension fund governance, to which an international group of 88 senior pension fund executives responded. Survey responses indicate that the board competency problem has not disappeared. As was the case in 1997, we found a positive correlation between governance quality and fund performance.

The new results also suggest that selection processes for members of the board of governors continue to often be haphazard. Self-evaluation of board effectiveness continues to be the exception rather that the rule. Weak oversight functions continue to lead to difficulties in sorting out the competing financial interests of differing stake holder groups, and result in organization dysfunction. Examples are lack of delegation clarity between board and management responsibilities, board micro-management, and non-competitive compensation policies in pension funds. We recommend a number of specific actions to address the governance challenges that continue to face pension funds.

We recommend a number of specific actions to address the governance challenges that continue to face pension funds. We also recommend that regulators require pension funds to regularly report on the actions they are taking to strengthen their governance processes.

CITATIONS AND REFERENCES:

October 01, 2008. Effective Pension Governance: New Insights and Research Findings Volums 1, Issue1 /2008 DOI:10.3138/rijpm.1.1.14 Pages:14 - 21