Pension Fund Governance

Pension Fund Governance

A Global Perspective on Financial Regulation

Edited by John Evans, Michael Orszag and John Piggott

The academic literature on pension governance is sparse and this book will fill some important gaps by bringing together original contributions from around the world on subjects related to the area. The book initially lays out the main frameworks for pension fund governance and then goes on to examine global governance practice and experience and country studies on pension funds in the United States and Australia. The final section of this in-depth study discusses the role of government guarantees.

Chapter 9: How do Australian Superannuation Fund Trustees Perceive their Role and Effectiveness?

Vrinda Gupta, Henry Jin, Michael Orszag and John Piggott

Subjects: economics and finance, financial economics and regulation, welfare economics


Vrinda Gupta, Henry Jin, Michael Orszag and John Piggott* 1. INTRODUCTION The collapse of WorldCom and Enron highlighted several failings of US corporate governance. Subsequent scrutiny has revealed that while some of the circumstances surrounding the collapses were specific to the companies themselves, systemic failures of corporate governance also played a part. Excessive executive pay and deficiencies in the settlement of mutual fund charges are just two examples of systemic failures that have come to the forefront recently. Governance failures are also apparent globally, with examples ranging from the failure of Equitable Life in the United Kingdom to the collapse of Parmalat in Italy. Pension funds deliver a significant component of retirement income in many countries, but their governance has attracted much less attention than the governance of corporations. In many cases, decision making in pension funds is in the hands of a relatively small number of individuals who are subject to relatively little oversight. While regulation is quite stringent in some countries, in others it is often inconsistent or nonexistent. Clark (2000) reviews private pension fund governance in detail in an international context. Analyses of public pension funds find underperformance relative to benchmarks. Governance, especially with respect to portfolio management, has significant implications for the investment performance of funds, and deserves attention for this reason alone. Iglesias and Palacios (2000) find that public pension funds in countries with poor governance structures significantly underperform the wider market. Mitchell and Hsin (1999) find that, in general, the poor investment performance of...

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