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1996: Public pension funds own over $300 billion; 30% of corporate equity. Political pressure on Public Pension Funds ERISA exempt. State laws prescribe investments. Table 1
Legislation recommends that investments be made to enhance local economic development and/or employment. Examples:
Legislation recommends that investments be made to enhance local economic development and/or employment. So what? Page 813: If a particular small business or residential project is unable to attract financing from the private sector, it is far more probable that the difficulty is due to the markets efficiently pricing the risk at a cost greater than the project developers are willing to pay, rather than the result of capital market failure.
Table 3: Positive relation between fund earnings and proportion of board elected by fund members (beneficiaries).
Table 4: Estimated loss of income attributable to lack of an independent board: $15 billion for 1985-1989 ! 1985-
Table 6: No significant difference on social responsibility votes (on N. Ireland and Environment issues) between public and private plans.
Suggests political pressure on public funds may be directed towards investment, not voting.
Del Guercio-Hawkins (1999): Public Pension Fund Activism Consider proposals submitted by the largest and most activist pension funds during 1987-1993: CREF, CALPERS, CALSTRS, 1987SWIB, NYC. Table 1 Board issues becoming more common in the 1990s. Antitakeover issues becoming less common. Voting issues remain popular.
Del Guercio-Hawkins (1999): Public Pension Fund Activism Table 2 Total domestic equity portfolio value CREF: $31.8 billion CALPERS: $19 billion Average dollar holding in target firms CREF: $67 million CALPERS: $34 million Total dollar holding in target firms CREF: $2.1 billion CALPERS: $1.1 billion Average % ownership in target firms CREF: 1% CALPERS: 1%
Del Guercio-Hawkins (1999): Public Pension Fund Activism Table 4: Frequency of announced events in the target firm in the four years after the firm is targeted. Does pension fund activism have a significant impact on target company business policies, organization, and governance? Management and board turnover is significantly higher for targeted firms. Shareholder lawsuits and public no votes for directors are significantly higher for targeted firms. Asset sales/spin-offs/restructuring/layoffs are significantly higher for targeted firms. Table 6: Do pension funds choose targets that are (even without being targeted) likely to engage in above policy/organizational changes? No.
Del Guercio-Hawkins (1999): Public Pension Fund Activism Impact of pension fund activism on long-term performance Pages 326-327: No long-term improvement in performance. Implication of above Pension fund activism has no long-term improvement in performance. Measurement techniques are not powerful enough to pick up small improvements in performance.
Measurement techniques are not powerful enough to pick up small improvements in performance. Barber and Lyon (Journal of Financial Economics, July 1996) Accounting operating performance: Return on assets (ROA) after controlling for industry performance: Superior ROA performance of 1% : Detected 2 times out of 10. Superior ROA performance of 2% : Detected 7 times out of 10. Superior ROA performance of 3% : Detected almost every time.
Measurement techniques are not powerful enough to pick up small improvements in performance. Kothari and Warner (Journal of Finance, 2001) Using state-of-the-art techniques, can we detect superior mutual fund performance? 100 basis points annual superior performance: Undetected. 500 basis points: Detected once every three times. 1500 basis points: Detected (almost) every time. Ability to detect superior performance improves if one tracks a mutual funds stock trades.