equity) of a nonfinancial "Chapter 12" corporate issuer; or more than **_5%_** of the fund in quotas of another pension fund; or more than **1%** of the value of the fund in securities of "non-Chapter 12" companies; or more than **_0.5%_** of the fund in individual foreign securities.

- **b.** Limits expressed as a share of particular instruments. The second limit applies to the share of each issue of corporate debt securities (bonds or commercial paper **by** leasing c:mpanies and other enterprises) that can be taken up **by** an individual pension fund or to the share of the equity capital of an issuer that can be held **by** individual pension funds. This is set at 20% of each commercial paper or corporate bond issue and **7%** of the equity capital of "Chapter 12" companies, **_2.5%_** for banking institutions, 1% for "non-Chapter 12" companies, and 20% for specialized real estate companies.

- **c.** Limits expressed as a share of each fund in the total resources of all funds. The third limit applies to the permitted total exposure of the pension fund sector as a whole. This takes account of the normal leverage of the issuer concerned. Thus, for liabilities of financial institutions, essentially banking institutions, the total investments of the whole pension fund sector cannot exceed **3** times the total equity capital of all financial institutions. For liabilities of leasing companies and nonfinancial corporations, the limit for the whole pension fund sector is **0.8** times their net capital. The last limit applies to each individual issue of securities **by** a leasing company or other enterprise.

- **d.** Limits exnrssed as a share of each issuer in the total liabilities of all issuers from the same sector. This limit applies to investments in liabilities of banking institutions and aims to prevent a big pension fund from investing in a particular banking institution more than a certain multiple of its share of the total liabilities of all banking institutions. This limit effectively replaces the second limit above, which does not apply on banking liabilities.

The third and fourth limits are weighted **by** a risk factor set **by** the Risk Classification Committee for each issue of securities and on a weighted average basis for each issuer. Corporate equities must be approved **by** the Risk Classification Committee but are not risk rated. The limits on investments in the equities of "Chapter 12" companies are weighted **by** an ownership concentration factor that is also set **by** the Risk Classification Committee. Investment limits in individual corporations are a decreasing function of ownership concentration. Tables 2 and **3** summarize the investment limits per issuer currently in force. (The chronology of changes in investment regulations is discussed below.) For pension fund managers in developed countries, who are generally free **to** set their own investment guidelines, the application of so many investment limits would appear excessively bureaucratic and inefficient. Limits that are based on the share of an individual pension fund in the total value of all pension funds or in the share of liabilities of an issuer in the total liabilities of all issuers of the same class of instruments may be onerous in practice and difficult both to comply with and to verify. Furthermore, there is a risk that imposing excessively strict investment limits may undermine the concept of private management and may in effect represent a government direction of funds through the back door.

**12**