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Pension Fund Management and International Investment
- A Global Perspective

E Philip Davis


This paper examines the potential and actual role played by international
investment in pension fund management. The paper draws largely on
experience of a range of OECD countries and selected emerging market
economies with established funded pensions systems, although we also
provide estimates for Trindad and Tobago, and for Jamaica. It is shown that
international investment allows superior investment performance in terms of
risk and return, and pension funds are well placed to take advantage of the
benefits, but they typically hold low proportions of foreign assets in their
portfolios. Whereas some degree of "home bias" is likely to occur naturally,
it is undesirable for regulations to enforce tighter limits on foreign assets than
these market forces would suggest. The arguments favouring regulatory
restrictions are weak. The future of funding itself seems likely to be turbulent,
given the growing scope of asset flows and the future decumulation when
ageing accelerates in OECD countries. These developments do not negate
the case for internation investment, but they do suggest a need to retain
elements of a pay-as-you-go system, as a form of insurance.