Public pension fund management: governance, accountability, and investment policies : proceedings of the second Public Pension Fund Management Conference, May 2003, Page 976

320 Pages·2004·1.23 MB·English

by  Alberto R. Musalem

Public Pension
Fund Management
Governance, Accountability,
and Investment Policies
Proceedings of the Second Public Pension
Fund Management Conference, May 2003
Edited by
Alberto R. Musalem
Robert J. Palacios

Public Pension
Fund Management
Governance, Accountability,
and Investment Policies
Proceedings of
the Second Public Pension
Fund Management Conference, May 2003

Public Pension
Fund Management
Governance, Accountability,
and Investment Policies
Proceedings of
the Second Public Pension
Fund Management Conference, May 2003
Edited by
Alberto R. Musalem
Robert J. Palacios
Copyright © 2004 The International Bank for Reconstruction
and Development / The World Bank
1818 H Street, N.W.
Washington, D.C. 20433, USA
All rights reserved
Manufactured in the United States of America
First printing August 2004
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Cover design and photo manipulation: James E. Quigley, World Bank Institute.
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Contents
Foreword xv
Contributors xvii
Introduction xxiii
Chapter 1
A Framework for Public Pension Fund Management 1
Jeffrey Carmichael and Robert Palacios
The Growth of Public Sector Pension Funds 2
Governance of Public Pension Schemes 6
Public Sector Governance: General Issues 7
Laying a Foundation for Public Pension Scheme Governance 8
A Governance Checklist 16
Accountability of Public Sector Pension Schemes 17
Laying a Foundation for Public Pension Scheme Accountability 17
An Accountability Checklist 22
Investment Policies 22
Laying a Foundation for Public Pension Scheme
Investment Policy and Processes 24
An Investment Policy Checklist 30
Conclusion 31
References 31
Annex 1.A: ABP Investment Policy Statement 34
Introduction 34
I. The Investment process 35
II. Investment plans 36
III. Implementation of the investment plan 37
IV. Social responsibility 37
v
Public Pension Fund Management
V. The role of the shareholder (“corporate governance”) 38
VI. Amendment of this Code 40
Annex 1.B: Index of Governance Framework Document—
Australian Prudential Regulation Authority (APRA) 41
1. Foundations 41
2. Key Roles and Relationships 41
3. Internal Accountability Framework 41
4. External Accountability Framework 41
5. Consequences of Failure to Meet Responsibilities 42
Appendix A—Statutory Responsibilities of Board Members 42
Appendix B—Matrix of Delegations 42
Notes 43
Chapter 2
Governance of Public Pension Funds:Lessons from
Corporate Governance and International Evidence 49
David Hess and Gregorio Impavido
Agency Theory and Corporate Governance 50
Agency Problems: Separation of Ownership and Control
and Moral Hazard Problems 50
Resolving Problems 52
Agency Problems in Public Pension Plans 57
Who Are Public Pension Fund Stakeholders? 58
Potential Agency Problems 59
Political Involvement: Government Restrictions
and Social Mandates 61
The Effects on Fund Performance 65
Solving Agency Problems 66
Separation of Ownership and Control 66
Ownership and Control in Private Pensions 66
Ownership and Control in Public Pension Funds 68
Implications for Governance 70
External Controls 71
Implications for the Governing Body of Public Pension Plans 72
Board Composition 73
Nomination and Termination 75
Accountability 77
vvii
Contents
Performance Measures 78
Roles of the Board 79
Standards of Behavior 81
Information and Transparency 83
Conclusion 84
References 85
Notes 89
Chapter 3
Transparency and Accountability of
Public Pension Funds 91
Anne Maher
Relevance 92
Key Components 93
The Key Components 93
Focus of Liability 94
Good Governance of the Governing Body 95
Effective Accounts and Audit 95
Effective Custody 96
Public Transparency and Reporting 96
Independent Oversight 97
Good Models: What They Do 97
Good Models 97
Canada Pension Plan 98
Norwegian Government Petroleum Fund 100
California Public Employees’ Retirement System (CalPERS) 101
Irish National Pensions Reserve Fund 103
Models with More to Do 103
Southeast Asia Region 103
Central Provident Fund in Singapore 103
Japan 104
Conclusion 104
Annex 3.A: The Norwegian Petroleum Fund—Key Figures, 2002 105
References 106
Notes 106
vviiii
Public Pension Fund Management
Chapter 4
The Canadian Experience on Governance,
Accountabilityand Investment 107
John A. MacNaughton
Background 108
Governance 111
Integrity 114
Investment Policy 116
Accountability 120
Concluding Remarks 123
Notes 123
Chapter 5
Public Pension Funds Accountability:
The Case of Ireland 125
Anne Maher
Background to the Irish Fund 125
Present Pension Arrangements 125
Recommendation for Fund 126
Fund Establishment 127
National Pensions Reserve Fund Act, 2000 127
Progress of the Fund since Establishment 129
Objective and Mission Statement 129
Decision on Investment Strategy and Portfolio Construction 129
Appointment of Service Providers 130
Decision on Market Entry Strategy 131
Performance 131
Accountability: Requirements and Practice 132
Responsible Party 132
Accountability Requirements in the Legislation 133
Accounts and Audits 134
Report and Information to the Minister 134
Appearance before the Committee of Public Accounts 135
Other Requirements for Accountability 135
Other Ways of Accounting to the Public 137
Meeting the Requirements in Practice 137
vviiiiii