Gregorio Impavido

# **III** CONCLUSIONS

This paper has sought to provide initial consideration on the importance of governance in public pension fund management, advocate the development of governance guidelines tailored to the public nature of these funds, underline the necessity of implementing these guidelines in developing countries where the largest share of retirement income is provided by public pension funds, and identify lines of future work and research to support the development of such guidelines.

The empirical literature on the relationship between governance and public pension fund performance, based largely on U.S. data, indicates that governance determines key investment strategies that, in turn, affect performance. These results are also supported by evidence in developing countries-some empirical, most factual-clearly indicating how the absence of good governance (that is, the inability to isolate fund management from political intervention) is an important determinant of poor performance. Few detailed results are so clear. For instance, independent performance evaluation is clearly associated with better investment policies, while frequent performance evaluation is not significantly associated with performance. However, other detailed results are not so clear. For instance, it is not clear what impact the size and composition of the board have on performance, although consensus is building that governors should be fit and proper and not too numerous. Further research clearly is needed, especially to identify the governance elements or mechanisms that are necessary to improve public pension fund management and hence perfornance in developing countries.

Govemance clearly matters. On the one hand, the importance of governance for private pension funds has been stressed for quite a long time now. In Canada, the Pension Investment Association of Canada (PIAC), the Association of Canadian Pension Management (ACPM), and the Office of the Superintendent for Financial Institutions (OSFI) have all developed independent guidelines for governance. The Canadian Standing Senate Committee on Banking, Trade, and Commerce issued a report on the governance practices of institutional investors in November 1998, which included a recommendation that pension plans in Canada adopt industry best practices with respect to plan governance. Specifically, the committee recommended that plan administrators adopt one of the PIAC, ACPM, or OSFI guidelines and report annually to pension plan members, setting out how they comply with, or exceed, the adopted guidelines and explaining why they do not comply if they choose not to do so. 5 On the other hand, the development of governance guidelines for public pension funds has lagged behind, probably because of the cross-national nature of the debate. Only a handful of countries are active in this area.

Nevertheless, consensus is building on the following statements:

- The sole objective of public pension funds should be to provide affordable and sustainable retirement income.

25 Since the three guidelines issued by PIAC, ACPM, and OSFI in the past few years contain many common principles, these organizations have formed a Joint Task Force on Pension Plan Governance. Its purpose is to develop a common set of principles for pension plan governance and a guide for plan administrators to conduct an assessment of their governance practices.

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