Pension Funds and Capital Markets : Investment Regulation, Financial Innovation, and Governance

Pension Funds and Capital Markets : Investment Regulation, Financial Innovation, and Governance

This Note briefly examines the dynamic interaction that can develop between pension funds and capital markets. Pension funds are not only a source of long-term savings to support the development of bond and equity markets. They can also be a positive force for innovation, for corporate governance, and for privatization. In turn, capital markets offer pension funds the opportunity for better portfolio returns and risk management. This interaction is a long, self-reinforcing process that builds on sound macroeconomic policies, effective regulatory reforms, as well as robust accounting, legal, and information infrastructure. The key message for policymakers is that pension reform should be part of a broad reform program. It need not be delayed until capital markets are well established. But, equally important, large quantities of state assets should not be transferred to newly formed private pension funds without first taking steps to develop robust and well-regulated capital markets. Chile's gradual approach to investment deregulation is a good model for developing countries introducing mandatory but decentralized pension systems.

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Bibliographic Details
Main Author: Vittas, Dimitri
Format: Viewpoint biblioteca
Language:English
Published: World Bank, Washington, DC 1996-02
Subjects:CAPITAL MARKETS, PENSION FUNDS, INVESTMENT POLICY, BONDS, EQUITY, DENATIONALIZATION, CORPORATE GOVERNANCE, FINANCIAL INNOVATION ACCOUNTING, ASSETS, AUDITING, BANK DEPOSITS, BANK LIABILITIES, BORROWING, BUDGET DEFICITS, CAPITAL FLIGHT, CENTRAL BANKS, CONTRACTUAL SAVINGS, DEBT, DEREGULATION, DERIVATIVES, EMERGING MARKETS, EQUITY INVESTMENTS, EQUITY MARKETS, FINANCIAL INNOVATION, FINANCIAL MARKETS, FINANCIAL RESOURCES, FINANCIAL SECTOR, FOREIGN ASSETS, GDP, GOVERNMENT BONDS, HOUSING, INFLATION, INFORMATION DISCLOSURE, INSURANCE, INSURANCE COMPANIES, INSURANCE MARKETS, LIFE INSURANCE, LIQUIDITY, MACROECONOMIC POLICIES, MARKETS, PENSION FUND INVESTMENTS, PENSION SCHEMES, PENSIONS, PRIVATE PENSION FUNDS, PRIVATIZATION, RISK MANAGEMENT, SECURITIES, SECURITIZATION, STOCK EXCHANGES, SUPERVISORY AGENCIES, WEALTH,
Online Access:http://documents.worldbank.org/curated/en/1996/02/696756/pension-funds-capital-markets-investment-regulation-financial-innovation-governance
http://hdl.handle.net/10986/11632
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Summary:This Note briefly examines the dynamic interaction that can develop between pension funds and capital markets. Pension funds are not only a source of long-term savings to support the development of bond and equity markets. They can also be a positive force for innovation, for corporate governance, and for privatization. In turn, capital markets offer pension funds the opportunity for better portfolio returns and risk management. This interaction is a long, self-reinforcing process that builds on sound macroeconomic policies, effective regulatory reforms, as well as robust accounting, legal, and information infrastructure. The key message for policymakers is that pension reform should be part of a broad reform program. It need not be delayed until capital markets are well established. But, equally important, large quantities of state assets should not be transferred to newly formed private pension funds without first taking steps to develop robust and well-regulated capital markets. Chile's gradual approach to investment deregulation is a good model for developing countries introducing mandatory but decentralized pension systems.

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