Pension Fund Management. A Case Study

In 1927, AT&T funded the first big corporate retirement plan, but it was much later that the large-scale pension fund business saw the day. Between this first step of the late 1920s and in the last four decades of the twentieth century came the government-sponsored national pension-and-health plans, of which the French Social Security of 1936 is one of the first holistic examples. Whether private or public, pension plans are a social safety net and their financing takes one of two forms: Pay-as-you-go, typically the national pension plan’s solution, and Reserves, with the money pouring into the pension plan’s coffers used for investments. Because of their function as savings vehicles for old age, pension funds (as well as life insurance companies) should primarily invest in the safer financial assets of a longer-term nature, with bonds given preference over stocks because equities have higher volatility. This choice, however, is not the general case. According to European Central Bank (ECB) statistics, at the end of 2002, holdings of debt securities constituted 38 percent, and quoted shares constituted 35 percent of total financial assets of insurance firms and pension funds in euroland.