Lachowska & Myck: What Is the Relation between Public Pensions and Private Savings?

From the paper:

Pension systems where current pension benefits are financed by current revenues, also known as pay-as-you-go systems, are vulnerable to demographic changes such as increased longevity and declining fertility. In part because of lower birth rates in the United States, a 2014 Social Security Board of Trustees report projects that by 2033, the costs of Social Security programs will increase so that revenues will pay for only about 77 percent of scheduled benefits (U.S. Government Printing Office 2014).

To deal with such demographic changes, over the past 20 years many European countries, including Italy, Poland, Sweden, and Germany, have reformed their pension systems (see, for example, Szczepański and Turner [2014]). A common theme of pension reforms has been to change the design of future pensions in order to encourage people to work longer and save more for retirement. Such reforms provide an opportunity to estimate whether, in response to lower future pensions, people save more on their own, or, equivalently, to answer whether pay-as-you-go public pensions crowd out private saving. The public pension crowd-out is an important policy parameter, because it tells us how much people would save on their own if Social Security benefits were lowered.

Available for download here.

Ebbinghaus: The Privatization and Marketization of Pensions in Europe – A Double Transformation Facing the Crisis

Abstract:

In response to the demographic challenges and fiscal constraints, many European welfare states have moved toward the privatization and marketization of pensions in order to improve their financial sustainability. The privatization of retirement income responsibility has led to a shift from dominantly public pensions to a multi-pillar architecture with growing private pillars composed of personal, firm-based, or collectively negotiated pension arrangements. At the same time, marketization has led to the introduction and expansion of prefunded pension savings based on financial investments as well as stronger reliance of market-logic principles in the remaining public pay-as-you-go (PAYG) pensions. However, there are also important cross-national variations in the speed, scope, and structural outcome of the privatization and marketization of European pension systems. Liberal market economies, but also some coordinated market economies (the Netherlands and Switzerland) as well as the Nordic countries have embraced multi-pillar strategies earlier and more widely, while the Bismarckian pensions systems and the post-socialist transition countries of Eastern Europe have been belated converts. The recent financial market and economic crisis, however, indicates that the double transformation may entail short-term problems and long-term uncertainties about the social and political sustainability of these privatized and marketized multi-pillar strategies.

Available for download here.

Csoma: Appreciation of the Role of Sovereign Wealth Funds in the Global Economy

Abstract:

This article is intended to explore the reasons behind the accumulation of massive foreign currency assets in oil exporting and large manufacturing economies in the 2000s, and to explain how the affected countries adjusted their investment policies after the 2008 crisis in respect of their reserves. Based on the statistics and analyses available, the article demonstrates how it was inevitable in these countries to dedicate a substantial portion of the claims – in excess of the optimum central bank reserves – to set up large public funds (“sovereign wealth funds”), and to invest a part of the assets in those funds abroad. This proved to be a wise solution particularly in China, where fiscal reasons render the economy prone to overheating in any case, and the unrestricted exchange of export receivables to the domestic currency would make the money supply balloon, leading to high inflation. Although low-risk but also low-return money market investments had dominated sovereign wealth funds for a long period of time, the countries concerned have changed their investment policies since the crisis, gradually shifting their focus to capital market options promising higher returns. Owing to the tightening of regulations in the wake of the crisis, banks’ previous role in project finance was called into question, especially in the case of infrastructure project financing, which is associated with a long-term return on investment. This provided an additional investment opportunity for the funds. At the same time, through the investment activity of funds, a peculiar nationalisation process is at work in the global economy, allowing funds owned by foreign governments to interfere with the strategic decisions of private corporations.

Taylor: Recent Trends in Federal Reserve Transparency and Accountability (Congressional Testimony)

Available here.  From the testimony:

To address current concerns in Congress about a lack of transparency and accountability at the Fed—as expressed by the title of this hearing—it is useful to consider recent historical trends. As Ben Bernanke put it in 2008, “The Congress has also long been aware of the importance of Federal Reserve transparency and accountability. In particular, a series of resolutions and laws passed in the 1970s set clear policy objectives for the Federal Reserve and required it to provide regular reports and testimony to the Congress.”
One of the most important moves toward transparency and accountability in the past 25 years occurred in February 1994 when the Fed began to announce its target for the federal funds rate and to report publicly whenever it decided to increase it or decrease it. While Fed monetary policy decisions in the years before that were made in terms of a federal funds rate target, markets had to guess what the target was. The decisions were often communicated by the Fed  through the financial press and Fed-watchers in vague and confusing ways, and the Fed was misinterpreted on a number of occasions. The lack of transparency gave an advantage to market participants who could get some kind of information about what the decision was. It also adversely affected accountability to Congress and the public about what the Fed was doing, and made it difficult for economists outside the Fed, or people in “civil society” more generally, to comment or do research and analysis on Fed policy. This 1994 transparency reform changed much of that.

Borgersa, Derwalla, Koedijkb & Horst: Do social factors influence investment behavior and performance? Evidence from mutual fund holdings

Abstract:

When tastes affect investment decisions of a significant number of investors they have the potential to affect asset prices and consequently also expected returns (Fama and French, 2007). In this paper we evaluate whether tastes for socially sensitive stocks affect holdings of U.S. equity mutual funds. We start with a comparison of socially responsible investment funds to conventional funds and document on the existence of conventional funds that have “more socially responsible” holdings than SRI labeled funds. Subsequently, we analyze whether these exposures to socially sensitive stocks affect mutual fund performance. Our findings indicate that especially investments in Tobacco, Alcohol, and Gambling stocks have the potential to positively affect risk-adjusted fund returns, while exposures to the most socially responsible firms negatively affect performance. This potential is not fully exploited by the mutual funds in our sample as they hold diversified portfolios resulting in small exposure differences between funds. These small exposure differences also explain why the literature has generally found no performance differences between SRI labeled and conventional funds. Based on our main findings we advice the use of holdings based analyses when investigating the effects of social tastes on investment portfolios.

Available for download here ($).

Lachowska & Myck: What Is the Relation between Public Pensions and Private Savings?

From the article:

Pension systems where current pension benefits are financed by current revenues, also known as pay-as-you-go systems, are vulnerable to demographic changes such as increased longevity and declining fertility. In part because of lower birth rates in the United States, a 2014 Social Security Board of Trustees report projects that by 2033, the costs of Social Security programs will increase so that revenues will pay for only about 77 percent of scheduled benefits (U.S. Government Printing Office 2014). To deal with such demographic changes, over the past 20 years many European countries, including Italy, Poland, Sweden, and Germany, have reformed their pension systems (see, for example, Szczepański and Turner [2014]). A common theme of pension reforms has been to change the design of future pensions in order to encourage people to work longer and save more for retirement. Such reforms provide an opportunity to estimate whether, in response to lower future pensions, people save more on their own, or, equivalently, to answer whether pay-as-you-go public pensions crowd out private saving. The public pension crowd-out is an important policy parameter, because it tells us how much people would save on their own if Social Security benefits were lowered.

Available for download here.

Clarvis, Bohensky & Yarime: Can Resilience Thinking Inform Resilience Investments? Learning from Resilience Principles for Disaster Risk Reduction

Abstract:

As the human and financial costs of natural disasters rise and state finances continue to deplete, increasing attention is being placed on the role of the private sector to support disaster and climate resilience. However, not only is there a recognised lack of private finance to fill this gap, but international institutional and financing bodies tend to prioritise specific reactive response over preparedness and general resilience building. This paper utilises the central tenets of resilience thinking that have emerged from scholarship on social-ecological system resilience as a lens through which to assess investing in disaster risk reduction (DRR) for resilience. It draws on an established framework of resilience principles and examples of resilience investments to explore how resilience principles can actually inform decisions around DRR and resilience investing. It proposes some key lessons for diversifying sources of finance in order to, in turn, enhance “financial resilience”. In doing so, it suggests a series of questions to align investments with resilience building, and to better balance the achievement of the resilience principles with financial requirements such as financial diversification and replicability. It argues for a critical look to be taken at how resilience principles, which focus on longer-term systems perspectives, could complement the focus in DRR on critical and immediate stresses.

Available for download here.

Morena, Furness and Truppi: A Cross-comparison analysis of the UK and Italian pension funds – the real estate asset class in the portfolio investment

Abstract:

Pension funds could be considered as institutional investors who have particular goal for those people retiring. Albeit with different weights, they play an important role in the pension system of many western countries both in terms of reaching financial sustainability and social security. As OECD reports, in 2013, pension funds confirmed their growing importance amongst institutional investors. With different features UK and Italians pension funds fit itself into this scenario, representing in 2013, respectively, 105,78% and 6,14% asset-to-GDP ratios. Amid the asset class in portfolio of pension funds, the real estate asset is the most important alternative as demonstrated by numerous scientific publications.

With this is mind, this work aims to highlight and show differences that incur between two samples of pension funds in the UK and Italy, in the allocation of real estate asset class of their portfolio. Particular attention has been given to the space of real estate asset class, the different instruments and location and type of property investments in both samples.

In order to achieve these objectives, two samples have been analysed, preceded by a brief explanation of the different pension system current in UK and Italy. For the first sample, this study analysed the top 20 biggest pension funds in UK, while the second sample comprises 10 pre-existing pension funds in Italy. Data is collected from annual reports available on pension funds website and refers to five years, 2009-2013.

Among the first evidence emerged, there is certainly the general asset evolution common to the two samples, albeit with obvious differences in terms of absolute growth and portfolio diversification. Then, it is possible to see the different allocation of property asset in the portfolio investments, with a greater propensity to historical real estate asset class and a recent reduction of properties for the Italian sample compared to UK, where there is a substantial unchanged over the years. Finally, after having seen a growing trend of investment in real estate funds in both cases, it can also be observed that there is a common propensity to invest exclusively in the national territory and specifically in commercial buildings.

Available for download here.

Pisu, Pels & Bottini: Improving Infrastructure in the United Kingdom

Abstract:

The United Kingdom (UK) has spent less on infrastructure compared to other OECD countries over the past three decades. The perceived quality of UK infrastructure assets is close to the OECD average but lower than in other G7 countries. Capacity constraints have emerged in some sectors, such as electricity generation, air transport and roads. Developing and regularly updating a national infrastructure strategy, with the National Infrastructure Plan being a welcome first step in this direction, would contribute to reduce policy uncertainty and tackle capacity constraints in a durable way. The design of coherent development plans by local authorities congruent with the national and local planning systems should continue to improve project delivery. The government intends to finance a large share of infrastructure spending to 2020 and beyond through private capital. Unlocking private investment in a cost effective and transparent way could be supported by further improving incentives for greenfield investment, continuing to carefully assess and record public-private partnerships, and promoting more long-term financing instruments. This Working Paper relates to the 2015 OECD Economic Survey of the United Kingdom (www.oecd.org/eco/surveys/economic-survey-united-kingdom.htm).

Available for download here.

Das & Banik: Outbound Foreign Direct Investment from China and India – The Role of Country-specific Factors

Abstract:

Chinese and Indian enterprises have been increasingly involved in international business thereby attracting global attention since the turn of the 21st century. This article examines outbound investment experiences of Chinese and Indian multinationals and compares and contrasts the investment development trajectory for  both the countries. The comparisons and contrasts are made with respect to government policy, motivations for outbound investment, financing of investment, success rate in overseas  acquisition, sectoral composition, characteristics of multinational enterprises (MNEs) and the challenges and impact of such investments in the light of differences in economic and institutional parameters between the two countries. It can be observed that there are more differences than similarities in the trajectory of outbound investments by Chinese and Indian enterprises. These differences arise due to the economic and institutional structure and the development path chosen by the two countries. Due to the differences  between Chinese and Indian economic development trajectories, which are unique in many ways, it is not meaningful to make a straightforward comparison of outbound foreign direct investment (FDI) experience of the two countries. Nevertheless, the main differences with regard to outward investment by Indian and Chinese enterprises can be observed in areas such as the degree of involvement of the public sector enterprises, financing of overseas investments, success rate of proposed mergers and acquisitions (M&A), sectoral composition of such investments, investment motives and so on. Various challenges facing outward FDI from China and India are highlighted, some of which could be addressed by specific economic and institutional reforms. The tale of the two countries examined in this article taken together contains important insights for emerging country enterprises and governments on the challenges and opportunities of global business,

Available for download here.