Analysis of Allocations of Brazil’s Closed Pension Funds

Abstract

Research Problem: What are the characteristics of the allocations in the respective investment assets (investment portfolios) of the closed pension funds in Brazil about risk x return? Motivation: This article aimed to deepen the knowledge of the social security systems segment, mainly the Closed Complementary Pension Entities (EFPC, which is also known in Brazil as Pension Funds) by way of national and international literature review, but they had their power maximized by making the Investment Statements-Assets database available to all closed entities (from 2010 to 2017), through the Regulatory Agency. Test Hypotheses: To achieve the objective of this study, we proposed two hypotheses: 1) allocations to higher/lower risk assets generate higher/lower risk, and 2) allocations to higher/lower risk assets generate higher/lower returns. Notably, the referred research hypotheses are not statistical hypotheses identified in the samples and need to be tested as valid in a population because this study analyzes the population of the Investment Statements-Assets (IS) of the closed pension funds of Brazil, with no hypothesis testing. Adopted Methodology and Analyses: It used panel data modeling and Generalized Method of Moments (GMM-Arellano-Bond), about the population of the Investment Statements-Assets (IS) of these entities, made available by the Regulatory Agency. It was analyzed together, by modalities of Defined Benefit (DB), Defined Contribution (DC), and Variable Contribution (VC) plans and by size (small, medium, and large). This paper was to research allocations from investment assets (investment portfolios period 2010-2017), from pension funds (2nd pillar) of the Brazilian system. Findings: Suggest that closed pension funds are efficient (Sharpe), and when considering the model applied and the annual periodicity, the allocations in higher-risk investments result in a higher return.