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Business/Education/Speech and Hearing Science (The Ohio State University Denman Undergraduate Research Forum) ; A public pension fund is a fund established by a government to facilitate and organize a nation's investments in retirement funds. Due to the relatively large amount of capital invested, stability of annual growth rate and risk management of public pension funds are important. After the global financial crisis in 2008, strategies of investment and risk management in global pension funds have changed. The purpose of this study is to compare excess rates of return ("α)" and investigate recent trends of investments among global pension funds before, during and after the 2008 financial crisis. My research methods include analyzing investment portfolios and annual reports of national/state pension funds in 9 different countries from 2004 to 2013: CalPERS (United States), CPPIB (Canada), AP (Sweden), NPS (South Korea), ABP (Netherlands), ATP (Denmark), GPIF (Japan), GPF (Norway), and NPRF (Ireland). When it comes to comparing excess returns, the data is sub-divided into three periods: pre-crisis (2004-2007), intra-crisis (2008-2010), post-crisis (2011-2013). My findings have shown pension funds suffering the biggest losses during the crisis also saw the strongest recovery after the crisis. Portfolio volatility was the greatest intra-crisis in comparison to pre and post-crisis. After the financial crisis, many funds have reduced investment in risky assets, such as equities, and increased investments in fixed income and alternative assets (e.g. real estate, private equities, commodities). These findings may offer better ideas of how to maintain a higher and more stable growth rate and protect pension funds from future financial crises in our financially intertwined world. ; Academic Major: Finance

Our report on "Long term market outlook" discussed the future market conditions both in the bond and equity markets, where the Pension Fund is currently invested, and in alternative asset classes, where the Fund may invest in the future. Here we summarise the findings and employ a simulation modelling framework to determine how changes in the investment strategy can be expected to affect the return distribution for the entire portfolio. We are looking both at the expected return and at different measures of risk exposure. The basic assumptions used in the modelling exercise are presented in section 1 below. We provide numerical details on the macroeconomic scenarios introduced in the Market Report, and specify the covariance matrices that will be assumed in each scenario. In section 2 we consider the equity/bond ratio in the existing benchmark portfolio, and the regional weightings within the equity and bond benchmarks. This analysis essentially confirms the conclusions from our 2005 Strategy Report. In section 3 we consider two market segments that are not currently part of the equity or bond benchmark. The small cap segment in the equity markets is the largest segment of listed markets outside the benchmark. We believe that the diversification benefits outweighs the operational burdens and recommend that small cap should now be included in the equity benchmark. The high yield segment of the bond markets is much smaller and heavily biased towards USD issues. But the expected return looks attractive, even taking the risk into account. We thus believe that the Fund should be invested in this segment. Replicating the Lehman High Yield index may on the other hand be a bad idea, because many of the papers in the index are difficult or impossible to buy, and because pricing may not always reflect risk in a reasonable way. We therefore do not recommend including the high yield segment in the bond benchmark. In section 4 we consider new asset classes. Real estate is the largest asset class where the Fund is currently not invested. We believe that real estate investments will provide attractive diversification benefits in the portfolio and recommend that it be included in the Fund's investment strategy. The size of the market limits the exposure the Fund can realistically obtain, however. Infrastructure investments have very similar characteristics to real estate, but the market is so far substantially smaller. We are proposing a common allocation to these two asset classes, with a strategic target of 10 percent of the total Fund. This is in line with other large investment funds, but we realise that this target will not be reached in the first few years. The Fund shall need to set up a new investment organisation and gradually build its real estate and infrastructure portfolios. Private equity is another asset class commonly included in the strategic allocations of large funds. We believe that returns on private equity are highly correlated with returns in the listed equity markets, and that the diversification benefits are limited. Furthermore, we do not find any evidence that an average investor can expect higher returns in the private equity markets. Private equity consequently looks only moderately attractive in the modelling exercise. We still recommend a strategic target of 5 percent of the Fund invested in this asset class. The reason is that returns vary substantially between managers ("leading partners") and that the differences tend to be persistent. A large investor such as the Pension Fund has a better probability of identifying and getting access to above average quality managers, and will then have a fair possibility of earning an excess return.

Our report on "Long term market outlook" discussed the future market conditions both in the bond and equity markets, where the Pension Fund is currently invested, and in alternative asset classes, where the Fund may invest in the future. Here we summarise the findings and employ a simulation modelling framework to determine how changes in the investment strategy can be expected to affect the return distribution for the entire portfolio. We are looking both at the expected return and at different measures of risk exposure. The basic assumptions used in the modelling exercise are presented in section 1 below. We provide numerical details on the macroeconomic scenarios introduced in the Market Report, and specify the covariance matrices that will be assumed in each scenario. In section 2 we consider the equity/bond ratio in the existing benchmark portfolio, and the regional weightings within the equity and bond benchmarks. This analysis essentially confirms the conclusions from our 2005 Strategy Report. In section 3 we consider two market segments that are not currently part of the equity or bond benchmark. The small cap segment in the equity markets is the largest segment of listed markets outside the benchmark. We believe that the diversification benefits outweighs the operational burdens and recommend that small cap should now be included in the equity benchmark. The high yield segment of the bond markets is much smaller and heavily biased towards USD issues. But the expected return looks attractive, even taking the risk into account. We thus believe that the Fund should be invested in this segment. Replicating the Lehman High Yield index may on the other hand be a bad idea, because many of the papers in the index are difficult or impossible to buy, and because pricing may not always reflect risk in a reasonable way. We therefore do not recommend including the high yield segment in the bond benchmark. In section 4 we consider new asset classes. Real estate is the largest asset class where the Fund is currently not invested. We believe that real estate investments will provide attractive diversification benefits in the portfolio and recommend that it be included in the Fund's investment strategy. The size of the market limits the exposure the Fund can realistically obtain, however. Infrastructure investments have very similar characteristics to real estate, but the market is so far substantially smaller. We are proposing a common allocation to these two asset classes, with a strategic target of 10 percent of the total Fund. This is in line with other large investment funds, but we realise that this target will not be reached in the first few years. The Fund shall need to set up a new investment organisation and gradually build its real estate and infrastructure portfolios. Private equity is another asset class commonly included in the strategic allocations of large funds. We believe that returns on private equity are highly correlated with returns in the listed equity markets, and that the diversification benefits are limited. Furthermore, we do not find any evidence that an average investor can expect higher returns in the private equity markets. Private equity consequently looks only moderately attractive in the modelling exercise. We still recommend a strategic target of 5 percent of the Fund invested in this asset class. The reason is that returns vary substantially between managers ("leading partners") and that the differences tend to be persistent. A large investor such as the Pension Fund has a better probability of identifying and getting access to above average quality managers, and will then have a fair possibility of earning an excess return.

Private pension funds in Russia have been growing in number dramatically over the past few years. The increasing importance of private pension funds as holders of financial assets means that their impact on the functioning of financial markets is steadily growing. The article discusses the range of factors that can stimulate further development of the pension system reform — principles of private professional pensions' regulation as well as the structure and mechanisms of pension funds' management.

In The Pension Fund Revolution, originally published nearly two decades ago under the title The Unseen Revolution, Peter F. Drucker reports that institutional investors, especially pension funds, have become the controlling owners of America's large companies, the country's only capitalists. He maintains that the shift began in 1952 with the establishment of the first modern pension fund by General Motors. By 1960 it had become so obvious that a group of young men decided to found a stock-exchange firm catering exclusively to these new investors. Ten years later this firm (Donaldson, Lufkin & Jenrette) became the most successful, and one of the biggest, Wall Street firms. Drucker's argument, that through pension funds ownership of the means of production had become socialized without becoming nationalized, was unacceptable to the conventional wisdom of the country in the 1970s. Among the predictions made by Drucker in The Pension Fund Revolution are: that a major health care issue would be longevity; that pensions and social security would be central to American economy and society; that the retirement age would have to be extended; and that altogether American politics would increasingly be dominated by middle-class issues and the values of elderly people. While readers of the original edition found these conclusions hard to accept, Drucker's work has proven to be prescient. In the new epilogue, Drucker discusses how the increasing dominance of pension funds represents one of the most startling power shifts in economic history, and he examines their present-day impact.