Do Investment Regulations Compromise Pension Fund Performance?: Evidence from Latin America (World Bank Latin American and Caribbean Studies. Viewpoints)

" "Draconian" regulations have created distortions in asset management, limited opportunities for diversification, and, as a consequence have hampered, the performance of pension funds." This volume shows that the return to retirement assets, expected replacement rates, and, hence, the net welfare gain from pension reform is lower under a draconian regulatory framework than under a more liberal pension fund investment regime. Important policy conclusions of the paper are that existing regulatory regimes should be liberalized as soon as possible to allow pension fund investments in a wider array of financial instruments and that regulations should require evaluation of pension fund performance against market benchmarks as opposed to exclusive focus on comparisons with industry averages. The paper also suggests a review of the current structure of the private pension fund industry in Latin America and an evaluation against alternatives in the light of actual performance experience.

this Report Assesses The Impact Of Regulatory Regimes On The Market Performance Of Private Pension Funds In Latin American Countries That Have Undertaken Reforms Of Their Pension Systems. It Focuses, In Particular, On The Effects Of Draconian Regulation, A Set Of Rules On The Industry ' S Structure, Investment Regime, And Performnce. The Authors Conclude That While Such Rules May Have Achieved Their Basic Objective Of Safeguarding Workers ' Retirement Savings From Financial Systems That Lack Transparency And Solidity, The Rules Are Not Without Costs. These Rules Create Distortions In Asset Management, Limit Opportunities For Diversification, And Consequently, Hamper The Performance Of Pension Funds. This Paper Shows That The Return To Retirement Assets, Expected Replacement Rates, And Hence The Net Welfare Gain From Pension Reform, Is Lower Under A Draconian Regulatory Framework Than Under A More Liberal Pension Fund Investment Regime. Important Policy Conclusions Are That Existing Regulatory Regimes Should Be Liberalized As Soon As Possible To Allow Pension Fund Investments In A Wide Array Of Financial Instruments, And That Regulations Should Require Evaluation Of Fund Performance Against Market Benchmarks, As Opposed To Exclusive Focus On Comparisons With Industry Averages. This Report Also Suggests A Review Of The Current Structure Of The Private Pension Fund Industry In Latin America And An Evaluation Against Alternatives In Light Of Actual Performance Experience.

Annotation " "Draconian" regulations have created distortions in asset management, limited opportunities for diversification, and, as a consequence have hampered, the performance of pension funds."This volume shows that the return to retirement assets, expected replacement rates, and, hence, the net welfare gain from pension reform is lower under a draconian regulatory framework than under a more liberal pension fund investment regime. Important policy conclusions of the paper are that existing regulatory regimes should be liberalized as soon as possible to allow pension fund investments in a wider array of financial instruments and that regulations should require evaluation of pension fund performance against market benchmarks as opposed to exclusive focus on comparisons with industry averages. The paper also suggests a review of the current structure of the private pension fund industry in Latin America and an evaluation against alternatives in the light of actual performance experience