Public pension fund governance practices and financial performance

Abstract

This study is a follow up of an earlier investigation concerning the effects of governance practices and investment strategies on public pension fund risk adjusted financial performance. Specifically, the inquiry uses three cross sectional national surveys of state and local government retirement systems to determine how governance practices in terms of system policies, board purview, and board composition impact abnormal returns. Results indicate that governance practices, particularly board purview over investment decisions, continue to have a direct negative impact on risk adjusted financial performance even after controlling for other factors.

Governance in the Australian Superannuation Industry

“…Interestingly, although only marginally significant, the existence of an investment committee and investment committee expertise is negatively associated with financial performance. This result concurs with U.S. research that finds a negative association between board purview of investment decisions and performance (Albrecht et al, 2007) suggesting that governance is a reaction mechanism to poor performance. Finally, the results show a significant association between the frequency of board meetings and volatility of returns, which infers that volatile plans meet more frequently.…”

“…Further analysis of the questionnaire responses shows that in the majority of cases, even when plans have a separate investment committee, the board has the final say in decisions relating to strategic investment matters, portfolio structure and portfolio manager selection (see Table III, Panel D). These findings are consistent with research on U.S. pension plans that show a negative association between board decisions on asset allocation and performance (Albrecht et al, 2007;Useem and Mitchell, 2000). Although not statistically significant, the economic relationship between investment committees and volatility is negative.…”