Public pension fund management: governance, accountability, and investment policies : proceedings of the second Public Pension Fund Management Conference, May 2003, Page 976 PDF
Preview Public pension fund management: governance, accountability, and investment policies : proceedings of the second Public Pension Fund Management Conference, May 2003, Page 976
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 The findings, interpretations, and conclusions expressed in this book are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they repre- sent. The World Bank does not guarantee the accuracy of the data included in this publica- tion and accepts no responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. The World Bank encourages dissemi- nation of its work and will normally grant permission to reproduce portions of the work promptly. Permission to photocopy items for internal or personal use, for the internal or personal use of specific clients, or for educational classroom use is granted by the World Bank, pro- vided that the appropriate fee is paid directly to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone 978-750-8400, fax 978-750-4470. Please contact the Copyright Clearance Center before photocopying items. For permission to reprint individual articles or chapters, please fax a request with complete information to the Republication Department, Copyright Clearance Center, fax 978-750-4470. All other queries on rights and licenses should be addressed to the Office of the Publisher, World Bank, at the address above or faxed to 202-522-2422. Library of Congress Cataloging-in-Publication Data has been applied for. ISBN 0-8213-5998-3 Cover design and photo manipulation: James E. Quigley, World Bank Institute. Original cover photo: Getty Images. 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
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