Pension Funds, the Requirement of Providing the Minimum Guaranteed Return and Excessive Legislative Restrictions of Pension Fund Investments

Markovič Hribernik Tanja () and Jakopanec Igor ()
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Markovič Hribernik Tanja: University of Maribor, Faculty of Economics and Business, Slovenia
Jakopanec Igor: Moja naložba, pension fund d.d – Group Nova KBM, Slovenia

South East European Journal of Economics and Business, 2012, vol. 7, issue 2, 7-22

Abstract: To reduce the exposure of the pension fund's members to financial risks, legislation in Slovenia and some other countries promises a so-called minimum guaranteed return and at the same time hinders the portfolio diversification process of pension funds. We intend to demonstrate in this article, on a case study basis and using a combination of empirical data from two Slovenian pension funds and a hypothetical one, that by precisely matching the investments' characteristics to the characteristics of the pension fund's liabilities, some important financial risks can be mitigated, while others can even be hedged entirely. We also intend to demonstrate that with the implementation of a proper policy of risk measurement and management, complemented with stress testing practices, excessive legislative restrictions for investments are no longer necessary. Some restrictions can even hinder portfolio diversification and the risk management process.

Keywords: pension funds; minimum guaranteed return; asset-liability management; risk management; portfolio regulation; Slovenia (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:seejeb:v:7:y:2012:i:2:p:7-22:n:1

DOI: 10.2478/v10033-012-0011-9

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