International Journal of Pension Management - SSRN papers

International Journal of Pension Management

Effective Pension Governance: New Insights and Research Findings Table of Contents

1

Global Thought Leadership Roger L. Martin

3

Why the World Needs this Journal Keith Ambachtsheer Effective Pension Governance: The Ontario Teachers’ Story Claude Lamoureux The Conception of APG: Reorganizing Pension Delivery in The Netherlands Roderick Munsters The Pension Governance Deficit: Still With Us Keith Ambachtsheer, Ronald Capelle, and Hubert Lum

4

6

12

14

Public Sector Pension Governance in the United States: Up to the Task? Joel T. Harper

22

Pension Governance in Australia: An Anatomy and an Interpretation Wilson Sy

30

Making Pension Boards Work: The Critical Role of Leadership Gordon L. Clark and Roger Urwin

38

Pension Collaboration: Strength in Numbers Danyelle Guyatt

46

Bringing Mutuality to Mutual Funds John C. Bogle

54

The Pension Fund Advantage: Are Canadians Overpaying their Mutual Funds? Rob Bauer and Luc Kicken 64

Volume 1 Issue 1 Fall 2008

Electronic copy available at: http://ssrn.com/abstract=1290637

Rotman International Journal of Pension Management

Volume 1 Fall 2008

•

Issue 1

Pension Collaboration: Strength in Numbers

Danyelle Guyatt Danyelle Guyatt is a visiting fellow at the University of Bath, and a Principal at Mercer Investment Consulting in the United Kingdom.

Regulation is one way to minimize the harmful impact of financial markets dysfunction. This article argues that collaboration among financial market agents such as pension funds offers a powerful alternative and points to a growing number of successful examples of collaborative initiatives. Behind these real world examples are useful theories of cooperation and conventions. Together, the examples and theories lead to an eight-step framework for identifying and designing optimal collaborative initiatives among pension funds and their agents. The power of this framework is demonstrated by using it to address the specific problem of short-termism, which leads to a mismatch between the short horizon conventions of many investment agents and the long horizon needs of retirement savings owners. The framework helps shape carrot and stick collaboration strategies that will lengthen investment horizons to match savings owner needs.

Growing evidence of biases and inefficiencies Regulation or Collaboration?

in investment behavior, combined with clear examples of global financial markets malfunction such as the recent sub-prime crisis, warrant a coordinated response to improve capital allocation processes. This is not an easy task, as it involves many agents including regulators, corporations, semi-government organizations, international industry bodies and the institutional investment community. Historically, knee-jerk responses to financial market difficulties have included regulation, or more precisely, re-regulation.

In this article 1, we argue that a more potent tool could be closer at hand. Collaboration by pension funds can be a powerful force for mobilizing change and improving the workings of the capital markets system. Global pension funds have become a genuinely powerful force for change. They are not only large owners of listed and private equity investments, but also act on behalf of millions of individuals around the world in the management of their long-term savings. Pension funds are generally well-informed and well-placed as long-term investors to consider key investment issues that would help to promote a more sustainable financial market system. Successful collaborative pension fund arrangements have already emerged in response to investment and capital markets 46

Volume 1

•

Issue 1

•

Fall 2008

•

dysfunction issues. We will review a number of these real world initiatives, as well as the theories of cooperation and conventions. This leads to the development of a framework for identifying and designing optimal collaborative models amongst pension funds and their agents. We will show that collaboration is not itself a panacea, but with careful consideration and design, can be mutually beneficial for all.

A Dysfunction Example: Short-termism in Financial Markets

We will focus on short-termism in financial markets as an example of how effective collaboration can produce positive change. There is mounting evidence that short-termisim could manifest itself in a herd mentality that discourages deeper analysis of risks and returns in the investment decisionmaking process 2. The long-term nature of institutional investors’ liabilities means that they have the capacity to manage their assets with a long-term horizon. There is evidence that the fund managers of institutional assets are overly influenced by short-term considerations. Paul Myners sums up the apparent gap that exists between the goals of long-term institutional investors and the reality of how their assets are actually invested:

10.3138/rijpm.1.1.46



“... the pension fund trustee might think the fund manager is running a marathon, but the fund manager knows that he can be pulled out of the race for below-average performance .... Typically, investors are interested in matching the market and beating it by a little. So there is little incentive for fund managers to express Buffett-style conviction. Outperformance of the index is pursued by taking small sector and stock bets around the index - a strategy with high transaction costs. This has unfortunate knock-on effects. For a start, the majority of investors fail to achieve their goal. Moreover, there is little benefit in allocating time to governance or activism. Takeovers are welcomed as a boost to short-term performance even if it is clear that they do long-term damage.” 3 In addition to destabilizing global financial markets and encouraging the use of narrow investment criteria in investment analysis (Guyatt, 2006), these short-term tendencies increase the transaction costs associated with portfolio management and erode returns over time (Bogle, 2005). Seeking collaborative solutions to improve the pension fund management process such as lengthening the investment horizon, requires the belief that market agents themselves can play a key role in implementing long-term change by recognizing and utilizing the interdependencies that exist in terms of market structure, decision-making processes and agent behavior (Schmid, 2004). Collaborative solutions offer at least four potential benefits: 1. Economies of scale advantages make collaboration between agents a more cost-effective and efficient way to implement change by pooling resources and sharing knowledge. 2. Sharing the risks associated with introducing change and new innovations, or what market agents refer to as the first mover risks (Hoffman et al., 1999). This is particularly true when innovations are directed at industry-level change, where perceived risks of being different from the crowd may encourage some coordinated level of effort (Keynes, 1936). 3. Coordinated efforts will be a more effective means of driving change and improvement than individual actions. A group of market agents have more power in terms of dollar value and representation at the industry level and would also be perceived as a legitimate voice with more weight in influencing others’ behavior. 4. Limitations to how much regulation can produce the right type of behavior among investment agents. In a dynamic and global investment environment, it is difficult for regulators to legislate control over investor behavior on issues that might be subjective such as how far to lengthen the investment horizon. Regulators need considerable investment knowledge and resources to develop the appropriate laws and

rules and to implement and regulate ongoing compliance. The time and effort involved may prove to be fruitless, lagging investment practices and may be better spent elsewhere.

Before examining how the short-termism problem can be addressed through a collaborative strategy, we briefly examine the theories behind such strategies and corresponding real world experience.

The Importance of Intrinsic Motivation

Values and principles internalized within the investment community are more likely to change behavior than external ones. Such arguments form the basis of Rosenau’s model of governance without government, which draws from Luhmann’s systems theory and Rawl’s theory of justice. This model builds on the notion that self-governing principles require an acceptance and integration of values and responsibility into daily life, rather than have these be artificially imposed. The philosopher Hobbes also suggested that the desire for self-preservation gives people a reason to seek cooperative solutions to social dilemmas. Extending this line of inquiry to the investment management community suggests that change from within may prompt more buy-in to the process and could become a more pervasive influence on daily decision-making and behavior. On its own, enforced change to the investment management process through regulation might not only create more inefficiencies, but could also undermine the investment agents’ motivation to foster real change. This is not meant to suggest that government regulation shouldn’t be reviewed, but rather the investment agents themselves could potentially be the primary architects of any new paradigm and ultimately share the responsibility for its success or failure.

What Can Actual Experience Teach Us?

Looking out in the real world, we note that a large number of collaborative arrangements involving pension funds already exist. Some have been successful, while others have faltered without meeting their goals. The 30 initiatives studied as part of a research project funded by the Rotman International Centre for Pension Management (ICPM) 4 were organized into six categories: 1. Corporate governance 2. Small group institutional investor groups 3. Industry bodies, semi-government and nongovernment organization groups 4. Climate change groups 5. Responsible investment groups 6. Academic / education initiatives Volume 1


•

Issue 1

•

Fall 2008

47


Volume 1 Fall 2008

•

Issue 1

The study, which includes a content analysis of websites and publicly available information, examined their characteristics including the country / region focus, core objectives / functions and member profile. The 30 initiatives are listed the Appendix. In addition to this broad review, the study contains a more detailed analysis of the positive and negative features of the Carbon Disclosure Project (CDP), the Council of Institutional Investors (CII) and the Enhanced Analytics Initiative (EAI) and revealed some of the lessons in building a framework for the design and identification of win-win collaborative opportunities. These features are summarized below: 1. Have a well-defined goal and objective. 2. Be clear about the change being sought and the agents being targeted. 3. Partners genuinely believe that it is in their selfinterest to participate in the initiative. 4. Recognize the heterogeneous nature of partners and design collaborative initiatives accordingly. 5. Focus on the power relations between agents to mobilize change more effectively. 6. Keep costs to a minimum in terms of upfront fees and the time, effort and skill required. 7. Measure and review the success of the initiative over time. 8. Follow up and coordinate the activities of partners as much as possible to ensure consistency in output. 9. Trust and perception of legitimacy are instrumental to the initiative’s success in mobilizing change including high profile partners and credible aims and methods. 10. Global, cross-collaborative initiatives increase power and potential influence, but need to be thoughtfully designed so as not to lose focus. An important question remains: Can the ongoing tension between cooperation and self-interest be resolved?

Cooperation and Self-interest

Axelrod (1984:3) eloquently summed up the cooperation vs. self-interest dilemma:

“.... under what conditions will cooperation emerge in a world of egoists without central authority? This question has intrigued people for a long time. And for good reason. We all know that people are not angels, and that they tend to look after themselves and their own first. Yet we also know that cooperation does occur and that our civilization is based upon it. But, in situations where each individual has an incentive to be selfish, how can cooperation ever develop?” 48

Volume 1

•

Issue 1

•

Fall 2008

Axelrod points out that, even though individuals are selfinterested and have disparate objectives, they still cooperate with each other. The list of 30 collaborative projects previously noted is proof that cooperation can and does exist outside a central authority.

Axelrod argued that in some situations, the pursuit of self-interest actually motivates individuals to coordinate their activities to reduce the risk of decision-making under uncertainty and to capitalize on potential economies of scale in pooling resources, knowledge, power and influence. There are other strands of theory that we can draw from, namely: 1. Evolutionary game theory advocates the importance of adaptive efficiency and the recognition that agents need not be locked into a Pareto-inferior mode of behavior indefinitely (Samuelson, 2002). Collaboration among pension funds and their agents is indicative of adaptive efficiency. 2. The theory of cooperation stresses the importance of reciprocity, trust and the shadow of the future of any cooperative arrangement (Axelrod, 1984). In other words, for agents to mutually benefit from the arrangement and for it to be sustained over time, a high level of importance needs to be attached to future interactions to discourage defecting. 3. On the theory of conventions, collective agreement is one way in which new conventions can emerge when a group recognizes the superiority of alternative conventions and deliberately sets about encouraging a change in behavior (Boyer and Orlean, 1992). All this suggests that collaboration is more likely to emerge around harder to fix problems at the industry level, rather than organizational-specific issues. In other words, it targets the externalities that an individual organization might not have the sway to influence. Cooperation requires pension funds to rethink the common conventions in daily decision-making in financial markets. The ultimate motivation for collaboration with others is the pursuit of self-interest.

Building a Framework for Collaboration

Behind this self-interested motivation to cooperate are the beliefs, priorities and perceptions of legitimacy of the participants. Figure 1 shows a schematic of these relationships, which may be summarized as follows: 1. Pursuit of self-interest is the primary motivator for each interacting agent in a group. All bring a set of core goals and objectives that define the essence of their role and functionality. While


either direct or indirect influence on the target agents. Columns 1 and 2 in Figure 4 provide a complete listing of the conventions associated with short-termism and the target agents for change. Columns 3 and 4 list the power agents and the relationship between them and the target agents for change. Column 5 lists the collaborative initiatives that may already exist to address the problem. Figure 2: The Collaborative Framework Step 1

The Problem

Specify the conventions that underpin these problem(s)

The Agents

Identify the target agent(s) for change

Initiation of Collaboration

Power Motives

Priorities

Identify where the power relations lie between interacting agents Assess if there are sufficient motives for collaboration between power agents

Design

Plan and develop collaborative initiative

Implementation

Cost effective implementation

Evaluation

Evaluate the effectiveness of the initiative

SELF INTEREST

Legitimacy

Step 1

The Conventions

Figure 1: Motives for Collaboration

Beliefs

Specify the nature of the problem(s)

Step 8

Ongoing Evaluation

self-interest is a fixed motivator, its interpretation is time varying and depends on an agent’s changing beliefs, priorities and perception of legitimacy. 2. Strength of beliefs will impact the desirability of collaboration and the level of effort expended. 3. Priorities are important, as organizations have competing goals and objectives with finite time and resources. High-priority issues are more likely to motivate agents to willingly engage in collaboration. 4. Trust and perception of legitimacy are also important motivators in the willingness to collaborate with others.

Step 8

Source: Guyatt, 2007 Source: Guyatt, 2007

All this leads to the eight-step collaboration framework set out in Figure 2. The framework draws from both the lessons learned in the real world case study analyses and the insights gained from coordination and conventions theories. We now proceed to use the framework to address the short-termism issue described earlier in the article.

Applying the Framework to Short-Termism

The five conventions behind the short-termism problem are set out in Figure 3. Its content draws from a number of sources and contributions that specify this problem and its causes, including Bogle (2005), Davis et al. (2006), the CFA short-termism report by Krehmeyer et al. (2006), Myners (2001) and Guyatt (2005; 2006). Figure 4 develops the framework further by showing there are many target agents to consider in solving the shorttermism problem. Then there are the power agents who have

Figure 3: The Conventions Behind the Short-Termism Problem Problem

Conventions

Short-termism

Narrow investment criteria Excessive focus on near-term earnings Excessive focus on relative returns to asset-based index (rather than liability-based benchmarks) Short-term performance appraisal Short-term investment mandates

Source: Bogle (2005), Davis et al. (2006), the CFA short-termism report by Krehmeyer et al. (2006), Myners (2001) and Guyatt (2005, 2006).

Volume 1

•

Issue 1

•

Fall 2008

49


Volume 1 Fall 2008

•

Issue 1

Figure 4: The Problems, Conventions, Agents and Existing Initiatives Conventions

Target Agents

Power Agents

Relationship

Collaboration

Narrow investment criteria

Analysts

Fund Managers

Commission

EAI

Fund Managers

Consultants Fund Executives

Rating Bonus

Trustees Fund Executives

Opinion Leaders, Media, Think-Tank

Communication And Standards

Rating Agencies

Clients

Product Demand

Index Constructors

Clients

Product Demand

Analysts

Fund Managers

Commission

Fund Managers

Consultants Fund Executives

Rating Bonus

Excessive focus on relative returns to asset based index (rather than liability based benchmarks)

All Agents

Industry Bodies Government Educators Academics

Standards Regulation Standards Evidence

Short-term performance appraisal

Consultants

Trustees

Contract

Trustees

Consultants Government Fund Executives Educators

Advice Regulation Communication Standards

Marathon Club, CFA, CFMI

Trustees Academics

Board Policy Evidence

ICPM

Beneficiaries

Financial Advisors Government Educators

Advice Regulation Knowledge

Consultants

Trustees

Contract

Trustees

Consultants Government Fund Executives Educators

Advice Regulation Communication Standards

Trustees Academics

Board Policy Evidence

Excessive focus on near-term earnings

Fund Executives

Short-term investment mandates

Fund Executives

50

Volume 1

•

Issue 1

•

Fall 2008

UN PRI

EAI

Marathon Club, CFA, CFMI


Figure 4 illustrates that the problem of short-termism is complex, but that it can be broken down into a number of manageable components. The conventional modes of behavior that drive it are reinforced by many different target agents along the investment management chain. The identification of power agents who can change the situation by a variety of means provides the key to effecting positive change. Finally, listing and understanding the effectiveness of pre-existing initiatives to address the problem is critical.

Pre-Existing Collaboration Initiatives

The Enhanced Analytics Initiative (EAI) is a good example of power agents targeting the problem agents to tackle shorttermism. The specific strategy here is that participating pension funds signal to analysts via the allocation of brokerage commissions that analysts widen their valuation framework beyond predicting the impact of near-term earnings changes. The Marathon Club is another example. Its pension fund members focus on lengthening the investment horizon and engaging with other asset owners in designing an alternative investment paradigm to the existing one.

Professional, academic and governmental groups are also becoming more significant power agents. The Centre for Financial Market Integrity of the CFA Institute has sponsored a round table discussion on short-termism. The Rotman ICPM June 2006 Discussion Forum was devoted to the theme of long-horizon investing. The UN Principles for Responsible Investment (PRI) have set about encouraging the integration of environmental, social and governance factors into the investment process of global institutional investors.

Despite the positive examples provided, the battle has not yet been won. The conventions behind short-termism remain largely intact and many more problem agents must be targeted for change. In particular, there is a need to challenge a number of dysfunctional mainstream practices. They include an excessive focus on returns relative to asset-based indexes rather than liabilities and short-term performance appraisals. None of the existing collaborative initiatives directly target these issues.

Pathway to Sustainability

This article built a case for collaboration as a potentially powerful way to promote a more sustainable financial market system. It highlighted the role pension funds can play in exercising their power and influence to achieve mutually beneficial outcomes. The article also made it clear that collaboration is not costless. Any initiative must be well-designed and implemented, recognizing that self-interest is the glue that holds it together over time. The eight-step framework for evaluating, designing and

executing collaborative opportunities draws on lessons of past successes and failures, as well as insights from game theory, cooperation theory and the evolution of conventions. It does so by specifying the nature of the problem and identifying the conventions behind it. It requires the identification of the target and power agents for change and where the power relations lie between interacting agents. It requires an assessment of the motives for collaboration and the degree of trust between power agents. The initiative must then be designed, implemented and evaluated on an ongoing basis. Its application to the problem of short-termism demonstrated its analytical power. In short, collaboration is a credible alternative, or complement, to regulatory changes aimed at creating a truly sustainable financial market system.

Appendix - A Sample of Collabortive Initiatives

Corporate Governance

Asian Corporate Governance Association (ACGA) Canadian Coalition for Good Governance (CCGG) Council of Institutional Investors (CII) European Corporate Governance Institute (ECGI) Global Corporate Governance Forum (GCGF) International Corporate Governance Network (ICGN)

Small Group Institutional Investor CalPERS and Hermes Enhanced Analytics Initiative (EAI) Investment Protection Principles (IPP) Marathon Club

Industry Body, Semi-Government and Non-Government Organizations Association of Canadian Pension Management (ACPM) Association of Superannuation Funds Australia (ASFA) CFA Institute European Fund and Asset Management Association (EFAMA) Investment Company Institute (ICI) National Association of Pension Funds (NAPF)

Climate Change

Carbon Disclosure Project (CDP) Ceres Institutional Investors Group on Climate Change (IIGCC) Investor Network on Climate Risk (INCR) Investors Group on Climate Change (IGCC)

Responsible Investment

European Social Investment Forum (Eurosif) Social Investment Forum (SIF) Social Investment Organisation (SIO) UK Social Investment Forum (UKSIF) UN Principles for Responsible Investment (UN PRI)

Academic / Education

CFA Centre for Financial Market Integrity Network for Studies on Pensions, Aging and Retirement (Netspar) Pension Research Council (PRC) Pensions Institute Rotman International Centre for Pension Management (Rotman ICPM) The Shareholder Association for Research and Education (SHARE)

Volume 1

•

Issue 1

•

Fall 2008

51


Volume 1 Fall 2008

•

Issue 1

Endnotes

1. The author would like to thank and acknowledge the Rotman International Centre for Pension Management (ICPM) for its research grant that supported this research and the helpful comments provided by Keith Ambachtsheer, Director of the Rotman ICPM. A version of this paper has been presented to the Rotman ICPM workshop in Toronto, June 2007; and the European Academic for Business in Society, September 2007, Barcelona at the Colloquium on Corporate Responsibility and Global Governance. 2. There is a growing body of literature that documents irrational behavior amongst financial market investors. This casts doubt on the validity of the Efficient Market Hypothesis. For example, evidence has been found to show that overconfidence of investors exists, whereby investors overestimate the precision of their information signal (Tversky and Kahneman 1974; Cosmides and Tooby, 1996; Shefrin and Statman, 1994; Stephan and Kiell, 2000; Daniel et al., 1998; Camerer and Lovallo, 1999). This is related to studies on over- and under-reaction (De Bondt and Thaler, 1985; Dreman and Berry, 1995) which show that investors tend to overvalue the best stocks and undervalue the worst. This, in turn, is usually driven by an extrapolation of recent performance (De Bondt, 1993; Andreassen, 1988; and Shleifer and Vishny, 1990). Furthermore, evidence of herding has been found in

References

Axelrod, R. (1984). The Evolution of Cooperation. New York: Basic Books. Bogle, J.C. (2005). The Battle for the Soul of Capitalism. New Haven: Yale University Press.

Boyer, R., and Orlean, A. (1992), How Do Conventions Evolve? Journal of Evolutionary Economics, 2(3), 165-177.

Davis, S., Lukomnik, J., and Pitt-Watson, D. (2006). The New Capitalists: How citizen investors are reshaping the corporate agenda. Boston: Harvard Business School Press. Guyatt, D. (2005). Meeting Objectives and Resisting Conventions: A Focus on Institutional Investors and Long-Term Responsible Investing. Journal of Corporate Governance, 5(3), 139-150. Guyatt, D. (2006). Identifying and Overcoming Behavioural Impediments to Long-Term Responsible Investing. Unpublished PhD thesis, University of Bath.

Hoffman, A.J., Gillespie, J.J., Moore, D.A., Wade-Benzoni, K.A., Thompson, L.L. and Bazerman, M.H. (1999). A Mixed-Motive Perspective on the Economics versus Environment Debate. American Behavioral Scientist, 42(8), 1254-1276.

52

Volume 1

•

Issue 1

•

Fall 2008

•

10.3138/rijpm.1.1.52

mutual funds (Grinblatt et al., 1995; Wermers, 1999) and in pension funds (Lakonishok et al., 1992; Nosfinger and Sias, 1999; and Sias, 2004). There is also a body of research that focuses on the relationship between investor behavior and the short-term investment horizon (see for example Stein, 1989; Froot et al., 1992; Webb, 1993), with growing evidence to suggest that myopic behavior prevails in the financial market (for example, Black and Fraser, 2000; Cuthbertson et al., 1997; Frederick et al., 2002; Miles, 1993; and Nickell and Wadhwani, 1987). Finally, Shiller (2000) studied the prevalence and drivers of fads and fashions and excess volatility that pervade the market over time.

3. Paul Myers, Future growth or short-term profit? Ftfm, November 9, 2003 4. The complete Rotman ICPM research report is titled Identifying and Mobilizing Win-Win Opportunities for Collaboration among Pension Fund Institutions and their Agents, July 2007. It can be accessed through www.rotman.utoronto.ca/icpm. The list of collaborative groups reviewed in this article and listed in Appendix A is not a complete summary of all initiatives that relate to the institutional investment community. Rather it is intended to provide a cross-section of some major collaborative initiatives across different types and functions.

Keynes, J.M. (1936). The General Theory of Employment, Interest and Money. New York: Cambridge University Press. Krehmeyer, D., Orsagh, M., and Schacht, K.N. (2006). Breaking the ShortTerm Cycle. A report prepared by CFA Centre for Financial Market Integrity/Business Roundtable Institute for Corporate Ethics.

Myners Review, (2001). Institutional Investment in the UK: A Review. A Study Commissioned by the U.K. Government. Retrieved from www.hmtreasury.gov.uk Rosenau, J. (1992). Governance, Order and Change in World Politics. In J. Rosenau and E. Czempiel, (Eds.) Governance without Government. Cambridge: Cambridge University Press. Samuleson, L. (2002). Evolution and Game Theory. Journal of Economic Perspectives, 16(2), 47-66.

Schmid, A.A. (2004). Conflict and Cooperation: Institutional and Behavioural Economics. Oxford: Blackwell Publishing.

About Rotman International Centre for Pension Management

Editorial Advisory Board Australia

The Netherlands

The mission of the Rotman International Centre for Pension Management (Rotman ICPM) is to be a catalyst for improving the management of pensions around the world. Through its research funding and discussion forums, the Centre produces a steady stream of innovative insights into optimal pension system design and the effective management of pension delivery organizations. Using Integrative Investment Theory as its guide, research and discussion topics focus on agency costs, governance and organization design, investment beliefs, risk measurement and management, and strategy implementation. The role of the Journal is to disseminate the new ideas and strategies that result from the activities of Rotman ICPM to a global audience. The Research Partners of the Centre believe that this broad dissemination is a win-win proposition for both professionals working in the global pension industry, and for its millions of beneficiaries.

Jack Gray - Sydney University of Technology Wilson Sy - Australian Prudential Regulation Authority

Rob Bauer - Maastricht University Dirk Broeders - De Nederlandsche Bank Jean Frijns - BCBG Institute

Canada

New Zealand

Leo de Bever - Alberta Investment Management Corporation Paul Halpern - Rotman School of Management, University of Toronto Claude Lamoureux - Corporate Director

Tim Mitchell - New Zealand Superannuation Fund

Sweden Tomas Franzén - The Second Swedish Pension Fund (AP2)

Denmark

United Kingdom

Ole Beier - Danish Labour Market Supplementary Pension (ATP)

Gordon L. Clark - Oxford University Roger Urwin - Watson Wyatt Worldwide

Japan Sadayuki Horie - Nomura Research Institute

United States Zvi Bodie - Boston School of Management, University of Boston Don Ezra - Russell Investments Brett Hammond - TIAA-CREF

2008 / 2009 Research Partners Australia

New Zealand

Australia Future Fund Australian Prudential Regulation Authority SunSuper Victorian Funds Management Corporation

New Zealand Superannuation Fund

The Netherlands

Canada Publisher and Editor Keith Ambachtsheer Associate Publisher and Editor Ann Henhoeffer ([email protected]) Copy Editor Brigette Kocijancic, ABC Design watermarkdesign.ca

151 Bloor Street West, Suite 702 Toronto, Ontario Canada M5S 1S4 Tel: 416.925.7525 Fax: 416.925.7377 www.rotman.utoronto.ca/icpm

Alberta Local Authorities Pension Plan Caisse dépôt et placement du Québec Canada Pension Plan Investment Board Ontario Municipal Employees Retirement System Ontario Teachers' Pension Plan

Denmark

All Pensions Group Cordares De Nederlandsche Bank MN Services PGGM Syntrus Achmea Asset Management

Sweden The Second Swedish Pension Fund (AP2)

Danish Labour Market Supplementary Pension (ATP)

United Kingdom

Japan

United States

Nomura Research Institute

© 2008 Rotman International Journal of Pension Management is published by Rotman International Centre for Pension Management at the Rotman School of Management, University of Toronto, CANADA in partnership with Rotman/University Toronto Press. Rotman International Journal of Pension Management is distributed at no charge as an electronic journal and can be accessed by visiting www.rotman.utoronto.ca/icpm. Print copies can be purchased at a cost of C$50.00 per issue (includes tax and shipping). To order print copies please visit www.rotman.utoronto.ca/icpm.

Universities Superannuation Scheme TIAA-CREF Washington State Investment Board

This work is licensed under the Creative Commons AttributionNoncommercial-No Derivative Works 2.5 Canada License. Under Creative Commons, authors retain ownership of the copyright for their article, but authors allow anyone to download, reuse, reprint, distribute, and / or copy articles from the journal, as long as the original author(s) and source are cited. No permission is required from the Author(s) or the Publisher. To view a copy of this license please visit www.rotman.utoronto.ca/icpm. ISSN 1916-9833 (Print) – C$50.00 ISSN 1916-9841 (Online) – no charge