<abstract xmlns="http://www.w3.org/1999/xhtml"><p> To reduce the exposure of the pension fund's members to financial risks, legislation in Slovenia and some other  countries promises a so-called minimum guaranteed return and at the same time hinders the portfolio  diversification process of pension funds. We intend to demonstrate in this article, on a case study basis and using  a combination of empirical data from two Slovenian pension funds and a hypothetical one, that by precisely  matching the investments' characteristics to the characteristics of the pension fund's liabilities, some important  financial risks can be mitigated, while others can even be hedged entirely. We also intend to demonstrate that  with the implementation of a proper policy of risk measurement and management, complemented with stress  testing practices, excessive legislative restrictions for investments are no longer necessary. Some restrictions can  even hinder portfolio diversification and the risk management process. </p></abstract>

To reduce the exposure of the pension fund's members to financial risks, legislation in Slovenia and some other  countries promises a so-called minimum guaranteed return and at the same time hinders the portfolio  diversification process of pension funds. We intend to demonstrate in this article, on a case study basis and using  a combination of empirical data from two Slovenian pension funds and a hypothetical one, that by precisely  matching the investments' characteristics to the characteristics of the pension fund's liabilities, some important  financial risks can be mitigated, while others can even be hedged entirely. We also intend to demonstrate that  with the implementation of a proper policy of risk measurement and management, complemented with stress  testing practices, excessive legislative restrictions for investments are no longer necessary. Some restrictions can  even hinder portfolio diversification and the risk management process.

Pension Funds, the Requirement of Providing the Minimum Guaranteed Return and Excessive Legislative Restrictions of Pension Fund Investments

University of Maribor, Faculty of Economics and Business, Slovenia

Moja naložba, pension fund d.d – Group Nova KBM, Slovenia

South East European Journal of Economics and Business

To reduce the exposure of the pension fund's members to financial risks, legislation in Slovenia and some other  countries promises a so-called minimum...

Pension Funds, the Requirement of Providing the Minimum Guaranteed Return and Excessive Legislative Restrictions of Pension Fund Investments

Published Online: Mar 09, 2013

Page range: 7 - 22

DOI: https://doi.org/10.2478/v10033-012-0011-9

This content is open access.