Investing the Balance of the Pension Fund of the Russian Federation

Natarov, V.; Chebotareva, N.
November 2002
Problems of Economic Transition;Nov2002, Vol. 45 Issue 7, p48
Academic Journal
This article looks at various ways of investing the money of the Pension Fund of the Russian Federation in Russian financial assets (bank deposits, government and corporate secu- rities) and surveys world experience in investing pension funds' resources. A common rule of thumb for sound investment is a preference for investing in market-based government securities. However, investments in large companies with a high rating, mutual funds, real estate, and other high-yield assets are also widely used in countries with a reliable and well-established financial system and prudential oversight. The portfolios of U.S. pension funds consist primarily of securities: bonds (government, corporate, and mortgage bonds) and stocks. The yield for corporate pension plans in the United States is somewhat higher than that of state and municipal pension plans, which is due to the higher portion of stocks in the portfolios of corporate pension funds (and the higher level of risk). The social security fund in the United States (Old Age and Survivors 'Insurance Fund,' OASIF), which pays outpensions, was created in 1935. OASIF is presently experiencing financial difficulties and makes payments from its current receipts, rather than from accumulated income, which means that it is essentially a distribution fund. The balance in OASIF is invested in low-yield U.S. government bonds. Particularly in developing countries, pension funds are under strict government control. There are five main types of restrictions on investments: ï on assets (a ceiling on certain types of assets in a fund's portfolio); ï on risk (the greatest acceptable risk associated with a security); ï on concentration of ownership (a ceiling on the portion of an individual company's total amount of shares that a fund may own); ï on the issuers (a ceiling on the portion of individual companies' assets in a fund's portfolio); and ï on securities (a ceiling on individual types of securities)....


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