Evaluating the Financial Performance of Pension Funds

by Hinz, Richard; Heinz P., Rudolph; Antolín, Pablo; Yermo, Juan

• ISBN13: 9780821381595
• ISBN10: 0821381598
• Format: Paperback
• Copyright: 2010-01-14
• Publisher: World Bank Publications

Summary

The increasing role of individual pension savings accounts requires the development of better performance measurement techniques for these funds to provide retirement income to aging populations worldwide. This book reviews current pension funds performance and identifies benchmarks that allow a better evaluation of their actual performance.

Table of Contents

Preface and Acknowledgments	p. xi
Abbreviations	p. xv
Evaluating the Financial Performance of Pension Funds	p. 1
Background and Motivation for the Research Program	p. 1
The Importance of Appropriate Measures of Performance	p. 3
Overview and Summary of the Book	p. 7
Policy Implications of the Research Findings	p. 18
Notes	p. 22
References	p. 23
Investment Performance of Privately Managed Pension Funds: Overview of the Available Data	p. 25
Description of Privately Managed Pension Funds around the World	p. 26
Additional Problems with the Data Reported on Investment Returns	p. 35
Preliminary Observations from the Initial Data Review	p. 35
Notes	p. 36
References	p. 37
Financial Performance of Pension Funds: An Exploratory Study	p. 39
Introduction and Overview of Findings	p. 39
Portfolio Performance Measurement	p. 40
Required Data	p. 53
The Pension Fund Database	p. 56
Legal and Administrative Considerations	p. 58
Results	p. 60
Conclusions	p. 67
Annex: Country Performance Fact Sheets	p. 69
Notes	p. 94
References	p. 94
Portfolio Choice, Minimum Return Guarantees, and Competition in Defined Contribution Pension Systems	p. 97
A Model Economy	p. 99
Equilibrium Portfolios under Benchmarking Constraints	p. 103
Discussion	p. 107
Annex	p. 108
Notes	p. 115
Reference	p. 116
Labor Market Uncertainty and Pension System Performance	p. 119
Pension Structures and Human Capital Uncertainty	p. 120
Interactions between Human Capital Uncertainty and Pension Performance	p. 123
Integrating Human Capital Uncertainty into Models of Pension Outcomes	p. 131
Benchmarks for Pension Performance	p. 139
Conclusions and Policy Implications	p. 145
Notes	p. 146
References	p. 151
Pension Funds, life-Cycle Asset Allocation, and Performance Evaluation	p. 159
Methodological Issues in Developing Optimal Portfolios That Include Pension-Specific Parameters	p. 163
Asset Allocation with Human Wealth	p. 168
A Basic Life-Cycle Model	p. 172
Welfare Ratios for Performance Evaluation	p. 191
Conclusions	p. 194
Notes	p. 197
References	p. 198
Application of Advances in Financial Theory and Evidence to Pension Fund Design in Developing Economies	p. 203
Global Trends of DC Pension Systems	p. 204
Policy Challenges of DC Pension Systems	p. 205
Innovations in Pension Fund Design	p. 207
Life-Cycle Investing	p. 209
Pension Fund Design in Developing Economies	p. 215
Performance Evaluation of Investment Options	p. 222
Concluding Remarks	p. 238
References	p. 239
Future Directions in Measuring the Financial Performance of Pension Funds: A Roundtable Discussion	p. 243
Commentary	p. 244
Commentary	p. 251
Commentary	p. 258
Commentary	p. 264
Index	p. 269
Figures
Total Assets and Asset Allocation, 2004	p. 31
The Sharpe Ratio	p. 41
Sharpe Ratios of U.S. Stocks and Bonds, Five-Year Rolling Estimates	p. 50
Short-Term Local Currency Sharpe Ratios	p. 65
Long-Term Local Currency Sharpe Ratios	p. 66
In-Sample Selection Returns	p. 67
Out-of-Sample Selection Returns	p. 68
Patterns of Earnings over the Lifetime, with Wage Level Indicator: Excluding and Including Zero Earners	p. 125
Pension Contribution Patterns in Chile by Age: Percentage of Available Years in Which Contributions Were Made	p. 128
Labor Income Process	p. 178
Life-Cycle Profiles of Consumption, Income, and Wealth	p. 179
Policy Functions: Sensitivity to Stocks	p. 180
Policy Functions: Sensitivity to Bonds	p. 180
Age Profiles of Optimal Stock and Bond Holdings (Averages)	p. 182
Age Profiles of Optimal Stock and Bond Holdings, Benchmark Case	p. 185
Age Profiles of Optimal Stock and Bond Holdings High Risk Aversion	p. 186
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