Countries around the world are increasingly relying on individual
pension savings accounts to provide income in old age for their
citizens. Although these funds have now been in place for several
decades, their performance is usually measured using methods that are
not meaningful in relation to this long-term objective. The recent
global financial crisis has highlighted the need to develop better
performance evaluation methods that are consistent with the retirement
income objective of pension funds.
Compiling research derived from a partnership among the World Bank,
the Organisation for Economic Co-operation and Development (OECD), and
three private partners, Evaluating the Financial Performance of
Pension Funds discusses the theoretical basis and key
implementation issues related to the design of performance benchmarks
based on life-cycle savings and investment principles.
The book begins with an evaluation of the financial performance of
funded pension systems using the standard mean variance framework. It
then provides a discussion of the limitations inherent to applying
these methods to pension funds and outlines the many other issues that
should be addressed in developing more useful and meaningful
performance measures through the formulation of pension-specific
benchmark portfolios. Practical implementation issues are addressed
through empirical examples of how such benchmarks could be developed.
The book concludes with commentary and observations from several noted
pension experts about the need for a new approach to performance
measurement and the impact of the recent global financial crisis on
pension funds.
TABLE OF CONTENTS
Chapter 1. Evaluating the Financial Performance of Pension
Funds
Heinz P. Rudolph, Richard Hinz, Pablo AntolÃn, and Juan
Yermo
Background and Motivation for the Research Program • The
Importance of Appropriate Measures of Performance • Overview and
Summary of the Book • Policy Implications of the Research
Findings
Chapter 2. Investment Performance of Privately Managed Pension
Funds: Overview of the Available Data
Pablo AntolÃn and Waldo Tapia
Description of Privately Managed Pension Funds around the World •
Additional Problems with the Data Reported on Investment Returns
• Preliminary Observations from the Initial Data Review
Chapter 3. Financial Performance of Pension Funds: An Exploratory
Study
Eduardo Walker and Augusto Iglesias
Introduction and Overview of Findings • Portfolio Performance
Measurement • Required Data • The Pension Fund Database
• Legal and Administrative Considerations • Results •
Conclusions
Chapter 4. Portfolio Choice, Minimum Return Guarantees, and
Competition in Defined Contribution Pension Systems
Pablo Castañeda and Heinz P. Rudolph
A Model Economy • Equilibrium Portfolios under Benchmarking
Constraints • Discussion
Chapter 5. Labor Market Uncertainty and Pension System
Performance
Olivia S. Mitchell and John A. Turner
Pension Structures and Human Capital Uncertainty • Interactions
between Human Capital Uncertainty and Pension Performance •
Integrating Human Capital Uncertainty into Models of Pension Outcomes
• Benchmarks for Pension Performance • Conclusions and
Policy Implications
Chapter 6. Pension Funds, Life-Cycle Asset Allocation, and
Performance Evaluation
Fabio C. Bagliano, Carolina Fugazza, and Giovanna Nicodano
Methodological Issues in Developing Optimal Portfolios That Include
Pension-Specific Parameters • Asset Allocation with Human Wealth
• A Basic Life-Cycle Model • Welfare Ratios for Performance
Evaluation • Conclusions
Chapter 7. Application of Advances in Financial Theory and
Evidence to Pension Fund Design in Developing Economies
Luis M. Viceira
Global Trends of DC Pension Systems • Policy Challenges of DC
Pension Systems • Innovations in Pension Fund Design •
Life-Cycle Investing • Pension Fund Design in Developing
Economies • Performance Evaluation of Investment Options •
Concluding Remarks
Chapter 8. Future Directions in Measuring the Financial
Performance of Pension Funds: A Roundtable Discussion
Commentary by Keith Ambachtsheer • Commentary by Olivia Mitchell
• Commentary by Luis Viceira • Commentary by Zvi Bodie
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