| Pension investments: transparency, not restriction, is key – OECD |
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| 02/04/2006 | |
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The Organisation for Economic Cooperation and Development (OECD) says that pension funds need not be subject to restrictive regulations in its latest update of guidelines on pension fund asset management. The OECD says that those rules "simultaneously call on regulators to give pension funds more flexibility in their investment choices and on trustees to be more diligent in monitoring their fund's investments." The organisation states that no minimum level or upper limit should be put on any asset class, including investments abroad. The tone of the guidelines, however, is much more restrictive with regards to the use of derivatives, which can prove very useful for the implementation of liability driven investment strategies. According to the OECD, "portfolio limits should be set only in specific instances, for example, to limit investment in the securities of an individual company or in shares of a fund's sponsoring employer and/or its asset manager." It states: "Legal provisions should address the use of derivatives and other similar commitments, taking into account both their utility and the risks of their inappropriate use. The use of derivatives that involves the possibility of unlimited commitments should be strictly limited, if not prohibited." It adds: "The use of derivatives as a management instrument may prove useful and effective if done in a prudent fashion in order to reduce investment risks or facilitate efficient portfolio management. Specific rules may need to be established in order to ensure that their use is consistent with appropriate risk management systems." The OECD also said that while pension fund investment strategies were becoming more sophisticated among its 30 member governments, fundamental differences remained in the way pension fund investments are managed and regulated. "For example, there are substantial differences between countries in the extent to which company sponsored pension funds are authorised to invest in the equity of the sponsoring company." J.L. |
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Articles of the same Topic : Pension funds world
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