Pension funds

Our customers include the Administration of the President of Russia, Russian Customs, the Ministry of Foreign Affairs, the Ministry of Health Care, the Immigration Service, the Pension Fund, and many important Russian banks. 

Department of Justice and some of the larger federal and state agencies, but, typically, in name only. We don t have enforceable policies yet to protect us. We don t have fallbacks of unions or pension funds. We don t have real protection. That s humbling and it makes me angry. 

Capital market inflation, financial derivatives and pension fund capitalism Jan Toporowski... 

Financial intermediation services, except insurance and pension funding services... 

Labor risks may involve higher payroll costs, requirements to maintain long-term pension funds liabilities, higher compliance costs, etc. ... 

Many major investors, such as pension funds, some mutual funds, and - in some cultures - banks are in favor of long term security. They are looking to their investments to produce long term growth in value and are therefore unlikely to compromise the interests of other stakeholders who contribute to making companies successful. Furthermore, a poor shareholder value performance makes companies unattractive to top talent and other stakeholders, undermining their competitive position in the long term. 

In addition, increasing investor power - due to a growing share of private shareholders and bundling of their interests in mutual and pension funds - amplifies the above reasons more powerful investors will be less willing to cope with a below average return and will as a result be more willing to abandon an underperforming stock. This will intensify the pressure on the stock price. 

Fringes - vacation, union dues, pension fund, medical coverage, travel, other. 

Equity capital consists of the capital contributed by stockholders, together with earnings retained for reinvestment in the business. Stockholders purchase stocks in the expectation of getting a return on their investment. This return can come from the dividends paid annually to stockholders (the part of earnings returned to the owners) or from growth of the company that is recognized by the stock market and leads to an increase in the price of the stock. Most stock is usually held by sophisticated institutional investors such as banks, mutual funds, insurance companies, and pension funds. These investors employ expert analysts to assess the performance of companies... 

There are clear signs that exactly this process is happening. For example, Hermes is a large asset manager in the United Kingdom that started out managing the pension fund assets of BT (then British Telecom). Today, Hermes has 44 billion under management. Hermes has recently required the leaders of firms held in portfolio to explain how their companies have value at stake on SEE (social, environmental and ethical issues) (Monks, 2001). 

The climate change actions led by some large public pension funds and state treasuries in the United States could well be the beginning of a sea change. If their actions are successful financially, this approach could expand to a much larger universe of investors across a more expansive range of sustainability issues. 

By the end of the 1990s, the social reporting concept was becoming more mainstream, as big players like Avon, BT, IKEA, Renault, Rio Tinto and Shell became involved. There is a debate in progress on whether it could now become mandatory. Although this is already the case in France and could follow in Brazil, at present it seems unlikely. However, it should be noted that in certain countries it is already a condition that some of the social aspects must be included in the annual report. For example, in the UK annual reports are required by law to include information on charitable donations, pension fund adequacy and employee share ownership schemes. 

In the UK, regulations obliging pension funds to state whether they consider environmental or social issues when making investment decisions came into force in July 2000. Any changes of this nature will be implemented through the widening of the Statement of Investment Principles (SIP) required by the 1996 Pensions Act. 

The CERES coalition, based in Boston, Massachusetts, was formed in 1989. It brought together 15 major US environmental groups, an array of socially responsible investors and public pension funds representing US 150 billion in invested capital, together with more than 200 Protestant denominations and Catholic orders. 

They wish to use the land as security for a pension fund, etc. 

In some pension plans several employers contribute to a single fund, usually to cover unionized workers. These plans are not relevant to North American chemists, who have no union. The pertinent and also commonplace arrangement calls only for a single company to contribute to one pension fund, which may include a defined-benefit or defiried-ccmtrihutian scheme. Some corporate pension plans include elements of both these schemes, so it s vital to understand them and the differences between them. 

In response to recent MV studies, there has been a strong inflow of capital into hedge funds. Even some normally risk-averse institutions such as pension funds are now making substantial allocations to hedge funds. Swensen (2000) maintains that a significant allocation to hedge funds as well as other illiquid assets is one of the reasons for substantial outperformance by leading university endowment funds over the last decade. 

Taxes are largely immaterial for pension funds, foundations, endowments, and offshore investors because of their exempt status. Mean-variance asset allocation can be applied directly for these investors as already described. However, for domestic investors, taxes are a critical issue that must be considered in modeling investment choices. 

In earlier chapters, we reviewed the basic features of index-linked bonds and their main uses. We also discussed the techniques used to measure the yield on these bonds. The largest investors in indexed bonds are long-dated institutions such as pension fund managers, who use them to match long-dated liabilities that are also index linked for example, a pension contract that has payments linked to the inflation index. It is common though for investors to hold a mixture of indexed and conventional bonds in their overall portfolio. 

Typically long-term institutional investors include pension funds and life assurance companies. Their investment horizon is long-term, reflecting the nature of their liabilities. Often they will seek to match these liabilities by holding long-dated bonds. 

By the end of 1998, Eurobonds outstanding in EMU country currencies had reached the equivalent of 425 billion. The market was set to take off, and the launch of the euro provided the vital push. Investor demand reflected two factors, in addition to the need to boost portfolio performance. One was the expanded universe in which they could invest. Pension funds and insurance companies were still currency-constrained. But now they could buy securities across the Eurozone, rather than just in their home country s currency. 

What America lacked in banking critical mass it more than made up for in the pension fund area. The US pension system is funded. That is, there are assets to meet the needs of retirees and to pay the future benefits of those still working. This is not to say that the funding is always adequate. Pension plan shortfalls frequently arise, especially during periods of market decline. But there are still huge amounts of cash to be invested in the equity and bond markets, as well as in alternative areas such as real estate. 

The UK government was probably a little reticent about issuing these bonds to start with, perhaps explaining the initial restriction that they could only be held by pension funds, or the pensions accounts within other businesses (e.g., annuities at life companies). This restriction was lifted after one year. 

This tax treatment covers most taxed investors, but there are exceptions. It is also worth saying that most index-linked gilts are held by pension funds, or within the pension business lines of life assurance companies, which do not pay tax, so this is not relevant for them. This also means that tax is not a material influence on the market. 

Corporate index-linked do not enjoy this inflation relief. The inflation uplift is taxable—that is, no inflation credit is applied. However, certain issuers might be able to obtain an exemption from this tax. The UK s Inland Revenue decided that since corporate issuers are allowed to offset the inflation uplift against taxable income, in the year that it accretes, then corporate linker investors should not receive inflation relief. As we have said, this is not an issue for pension funds who are the main holders. 

The sterling securities markets are dominated by long-term institutional investors, namely pension funds and life assurance companies. This is particularly (we would say acutely) true of the index-linked market. Official statistics for pension fund investments are perceived to be of poor quality. They are now notorious after the suspension of pension fund statistics between January and May 2002, pending an investigation into a 105 billion downward revision to the value of end 1999 equity asset holdings (from 395 billion to 290 billion). Bearing this in mind. 

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