Holders of the purse strings: Governance and performance of public retirement systems

Citation
M. Useem et Os. Mitchell, Holders of the purse strings: Governance and performance of public retirement systems, SOC SCI Q, 81(2), 2000, pp. 489-506
Citations number
44
Language
INGLESE
art.tipo
Article
Categorie Soggetti
Sociology & Antropology
Journal title
SOCIAL SCIENCE QUARTERLY
ISSN journal
0038-4941 → ACNP
Volume
81
Issue
2
Year of publication
2000
Pages
489 - 506
Database
ISI
SICI code
0038-4941(200006)81:2<489:HOTPSG>2.0.ZU;2-L
Abstract
Objective. Public-sector pension plans are managed in diverse ways, with go vernance policies distinguished according to how the plan's board is compos ed, how the trustees structure their investment decisions, what restriction s are placed on investments, and whether there are independent performance evaluations. We examine how these governance policies affect pension invest ment strategies, and how those strategies in turn affect the funds' financi al performance. Methods. Drawing on two national surveys of state and local public retirement systems in 1992 and 1993, we ask if pension governance p olicies affect whether the retirement systems (1) invest tactically in resp onse to changing conditions; (2) allocate assets between equities and fixed -income holdings; (3) contract for external asset management; and (4) inves t outside the U.S. Results. Empirical analysis reveals that governance poli cies-especially independent performance evaluations-predict investment deci sions in all four areas. These investment strategies in turn are found to a ffect subsequent fund performance: preferential investing in equities and a broad increased annual returns on assets by as much as 1 to 2 percentage po ints. Conclusions. The ways that public pensions are governed have a direct bearing on how they invest their assets, and the investment strategies in turn directly affect the financial performance of their holdings.