U.S. Pension Fund Investments: Trends, Regulations and Corporate

Governance

International Pension ConferenceFIAP and the Chilean Pension

Funds Administrations AssociationMarch 15, 2001

Pension Fund Investments: Current and Future Trends

Private Pensio n P lans: Portforl io Co m posit ion ($B illio ns)

-

1,000

2,000

3,000

4,000

5,000

6,000

19851 986

1 9871 988

1 9891 990

1 9911 992

1 9931 994

1 9951 996

1 9971 998

1 9992 000

E qui ty B onds C ash I tem s O ther A ssets

Pension Fund Investments: Current and Future Trends ($ Billions)

Year Equity Bonds Cash Items

Other Assets

1985 495 308 130 298

1990 573 364 178 456

1995 1,193 493 193 867

2000 2,208 610 265 1,680

Pension Fund Investments: Current

Trends For private sector plans, equities as a

share of total assets have grown slightly to 46% of the total portfolio.

Bonds have decreased from 25% of total assets in 1985 to 12.8% in 2000.

Equities in public sector plans comprise 67% of assets, bonds equal 22%, and 8% of assets are in cash and other assets.

Pension Fund Investments: Future

Trends Effect of the US Stock Market Company Stock in Pension Plans “Social Investing” Investment Responsibility:

Employer v. Employee Changes to Fiduciary Regulations

Corporate Governance

Structure of U.S. Pension Laws– Review of ERISA’s Rules for

Fiduciary Duties and Conduct– Who Controls Plan Assets:

• Plan Trustee• Named Fiduciary• Investment Manager

Corporate Governance

The Directed Trustee Exception:– Plan may permit participants to be

named fiduciaries who may direct plan trustee

– Conditions for participants to direct plan trustee

– Tendering of unallocated or non-voted stock

Corporate Governance

Investment Manager Exception– The fiduciary act of managing plan

assets includes responsibility for voting of proxies

– Investment manager cannot delegate duties so as to relieve itself of fiduciary responsibilities

– Appointment and monitoring of investment manager

Corporate Governance

Issues Related to Corporate Governance in the U.S.– Inactivity of Plan Fiduciaries– Effect of “Class Action” Lawsuits

U.S. Pension Fund Investments: Trends, Regulations and Corporate

Governance

International Pension ConferenceFIAP and the Chilean Pension

Funds Administrations AssociationMarch 15, 2001