Upgrading Investment Regulations in Second Pillar Pension Systems : A Proposal for Colombia

The passivity of the demand for pension products is one of the striking features of mandatory pension systems. Consequently, the provision of multiple investment alternatives to households (multifund schemes) does not ensure that contributions are invested efficiently. In addition, despite the theoretical findings that short term return maximization is not conductive to long-term return maximization, the regulatory framework of pension fund management companies puts excessive emphasis on short-term maximization. Therefore, it is not obvious that typical regulatory framework of pension funds is conductive to optimal pensions. By establishing a set of default options on investment portfolios, this paper proposes a mechanism to align the incentives of the pension fund management companies with the long-term objectives of the contributors. The paper provides a methodology, which is subsequently applied to Colombia.

Bibliographic Details

Main Authors:	Castaneda, Pablo, Rudolph, Heinz P.
Language:	English
Published:	2011-08-01
Subjects:	ASSET CLASS, ASSET CLASSES, ASSET MANAGEMENT, ASSET PORTFOLIO, ASSET PRICE, ASSET PRICES, BANK DEPOSITS, BANKING CRISES, BENEFICIARIES, BOND INSTRUMENTS, BOND YIELD, BOND YIELD CURVE, BROKERAGE, CAPITAL FLOWS, CAPITAL MARKET, CAPITALIZATION, CIVIL CODE, CIVIL CODES, COMMON LAW, COMPETITIVE FRAMEWORKS, COMPETITIVE MARKETS, CONFLICTS OF INTEREST, CONFLICTS OF INTERESTS, CONSUMPTION SMOOTHING, CORPORATE BOND, CREDIT RISK, CURRENCY RISK, DECLINE IN INVESTMENTS, DEPOSITS, DERIVATIVES, DEVELOPING COUNTRIES, DIVERSIFIED PORTFOLIO, DIVERSIFIED PORTFOLIOS, DOMESTIC CAPITAL, DOMESTIC CAPITAL MARKET, DOMESTIC EQUITIES, ECONOMIC DEVELOPMENT, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKETS, EQUITIES, EQUITY INDEX, EQUITY INSTRUMENTS, EQUITY INVESTMENT, EQUITY INVESTMENTS, EQUITY RETURNS, EQUITY VALUE, EXCHANGE RATE, FAIR VALUATION, FIDUCIARY RESPONSIBILITY, FINANCIAL ASSETS, FINANCIAL INFRASTRUCTURE, FINANCIAL INSTITUTIONS, FINANCIAL MARKETS, FIXED INCOME, FIXED INCOME MARKETS, FIXED INCOME PORTFOLIO, FOREIGN CURRENCY, FOREIGN EQUITIES, FOREIGN EQUITY, FREE ASSET, FREE ASSETS, FUND MANAGEMENT, FUND MANAGER, FUND MANAGERS, FUTURES, FUTURES MARKET, FUTURES MARKETS, GLOBAL CAPITAL, GLOBAL CAPITAL MARKETS, GLOBAL MARKETS, GOVERNMENT BOND, GOVERNMENT BONDS, GOVERNMENT SECURITIES, HEDGES, HIGH YIELD BONDS, HOLDING, HUMAN CAPITAL, ILLIQUID MARKETS, INCOME INSTRUMENTS, INCOME LEVEL, INDEXED BOND, INDEXED BONDS, INDIVIDUAL INVESTOR, INFLATION, INFLATION RISKS, INSTITUTIONAL INVESTOR, INSTITUTIONAL INVESTORS, INSTRUMENT, INSURANCE, INSURANCE COMPANY, INTEREST RATE, INTERNATIONAL BANK, INTERNATIONAL DIVERSIFICATION, INTERNATIONAL MARKET, INTERNATIONAL MARKETS, INVESTING, INVESTMENT ALTERNATIVES, INVESTMENT DECISION, INVESTMENT DECISIONS, INVESTMENT FUND, INVESTMENT GUIDELINES, INVESTMENT HORIZON, INVESTMENT HORIZONS, INVESTMENT IN STOCKS, INVESTMENT OPPORTUNITIES, INVESTMENT OPPORTUNITY, INVESTMENT POLICY, INVESTMENT PORTFOLIO, INVESTMENT PORTFOLIOS, INVESTMENT REGULATION, INVESTMENT REGULATIONS, INVESTMENT RESTRICTIONS, INVESTMENT STRATEGIES, INVESTMENT STRATEGY, INVESTMENTS IN EQUITIES, ISSUANCE, JUDICIAL COURTS, LIABILITY, LIFE INSURANCE, LIFE INSURANCE COMPANIES, LIFE INSURANCE COMPANY, LIQUID ASSETS, LIQUIDATION, LIQUIDITY, LIQUIDITY PREMIUM, LIQUIDITY RATIO, LIQUIDITY RISK, LOCAL INVESTORS, LOCAL MARKET, LOCAL MARKETS, LONG-TERM INTEREST, LONG-TERM INTEREST RATES, LONG-TERM INVESTMENT, LONG-TERM INVESTOR, LONG-TERM INVESTORS, MANDATORY PENSION FUND, MARKET COMPETITION, MARKET CONDITIONS, MARKET DEVELOPMENT, MARKET INDICES, MARKET PLAYERS, MARKET RISK, MARKET RISKS, MARKET SHARE, MARKET STRUCTURE, MINORITY SHAREHOLDERS, MORTGAGE, MORTGAGE BONDS, MUTUAL FUNDS, OPTIMAL INVESTMENT, OPTIONS MARKET, PENSION, PENSION FUND, PENSION FUND INVESTMENT, PENSION FUND INVESTMENTS, PENSION FUNDS, PENSION REFORMS, PENSION SYSTEM, PENSION SYSTEMS, PENSIONS, PORTFOLIO, PORTFOLIO ALLOCATIONS, PORTFOLIO INVESTMENT, PORTFOLIO MANAGEMENT, PORTFOLIO QUALITY, PORTFOLIO RISK, PUBLIC DEBT, PUBLIC FUNDS, PURCHASING POWER, RATES OF RETURN, REAL INTEREST, REAL INTEREST RATES, REGULATORY AUTHORITY, REGULATORY FRAMEWORK, REINVESTMENT, REINVESTMENT RISK, REINVESTMENT RISKS, RESERVE, RETURN, RETURN ON ASSETS, RETURNS, RISK AVERSION, RISK MANAGEMENT, RISK PROFILE, RISK PROFILES, RISKY ASSET, RISKY ASSETS, SECURITIES, SECURITIES MARKETS, SHAREHOLDER, SHAREHOLDERS, SHORT-TERM ASSET, SHORT-TERM ASSETS, SHORT-TERM BOND, SHORT-TERM CAPITAL, SHORT-TERM INSTRUMENTS, SHORT-TERM TREASURY BILL, SHORT-TERM TREASURY BILLS, SINGLE ASSET, SOVEREIGN BONDS, SOVEREIGN DEBT, SOVEREIGN DEFAULT, STOCK MARKET, STOCK RETURN, STOCK RETURNS, STOCKS, SUPERVISORY AUTHORITY, TAX, TRADING, TRANSACTION, TRANSPARENCY, TREASURY, UNDERDEVELOPED CAPITAL MARKETS, UNDERLYING ASSET, VALUATION,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110823090344 https://hdl.handle.net/10986/3537
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