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OECD Working Papers on Insurance and Private Pensions

Selected studies on insurance and private pensions policy prepared for use within the OECD and addressing such policy issues as risk management, governance, types of investments, and benefit protection. This working papers series has been discontinued; it is superseded by ‘OECD Working Papers on Finance, Insurance and Private Pensions’ available via: http://dx.doi.org/10.1787/20797117.

English

Pension Fund Investment in Hedge Funds

Having outlined the potential concerns relating to pension fund investment in hedge funds, the OECD carried out a survey to investigate what information pension fund regulators have on these investments and how they are being controlled. The survey confirms that pension fund regulators have little information regarding how pension funds in their jurisdiction are investing in hedge fund products (in terms of size of investments, the types of hedge funds pension funds are exposed and to what type of product). Only the Slovak Republic and Mexico (for the mandatory system) prevent pension funds from investing in hedge funds. Although the level of such investment is still very low in other countries, it is almost universally expected to increase. Few countries impose specific quantitative investment restrictions on pension fund investment in hedge funds, with most regulators exercising control via general investment restrictions and requirements (for diversification, transparency, through the prudent person rule etc.). Some regulators have provided pension funds with further guidance as how to handle these instruments. In terms of policy issues, most concern centre around financial risk control and how to improve transparency and disclosure in relation to these investments.

English

Keywords: qualitative restrictions, transparency, quantitative limits, pension fund, risk control, hedge funds
JEL: G18: Financial Economics / General Financial Markets / General Financial Markets: Government Policy and Regulation; G23: Financial Economics / Financial Institutions and Services / Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors; G11: Financial Economics / General Financial Markets / Portfolio Choice; Investment Decisions; J31: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Wage Level and Structure; Wage Differentials
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