Effects of Governance Practices and Investment Strategies on State and Local Government Pension Fund Financial Performance

Public pension fund governance practices and financial performance

“…For example, Nofsinger (1998) finds some (inconsistent) evidence that direct agency costs exist when the interests of pension participants (through elected members) are not in line with that of taxpayers who are residual claimants of public pension fund surpluses and deficits. Albrecht and Hingorani (2004) also show that the percentage of the board appointed consistently reduces risk adjusted returns by approximately 2 basis points. 9 Each of the three surveys provides information for the variables of interest.…”

“…"Still, some pension fund boards fix the allocation of assets among classes of investments, and some even take a direct hand in picking the investments" (Useem & Mitchell, 2000, p. 497). Such inexperience may have a negative effect on financial performance and Albrecht and Hingorani (2004) do find some evidence of such occurrences when board members make asset allocation decisions. The PPCC 's 2001, 2000, and 1997 surveys each include a consistent and single item for determining board authority in relation to investment decisions.…”

“…And, Albrecht and Hingorani (2004) found evidence of a negative impact on risk adjusted financial performance. These contradictory results did not support a clear expectation as to direction.…”

“…Specifically, the decision to include a particular governance practice in the study was generally, but not exclusively, based on the work of Albrecht and Hingorani (2004), Useem and Hess (2001), and Useem and Mitchell (2000). A notable exception exists in relation to whether or not the pension fund board has controlling authority over investments.…”

“…The objective of this study is to extend the work of Albrecht and Hingorani (2004) which examined the effects of governance practices and investment strategies on state and local government pension fund financial performance. In that investigation the researchers test the mediating theory of Useem and Mitchell (2000) who -----------------------------------* William G. Albrecht, Ph.D., …”