6 December 2011
The good practices reflect what pension regulatory and supervisory authorities usually expect to examine when assessing the risk management of pension funds that use alternative investments and derivatives. They outline how supervisors should oversee such investments and suggest possible regulatory controls.
The character of the good practices emphasises the overriding principle that it is the responsibility of pension funds to develop their own alternative investment and derivatives policies in a responsible manner. As such, they may also help and encourage pension funds to improve their risk management practices and thereby use these instruments safely and effectively.
Developing the good practices
The OECD and the IOPS developed these good practices in view of the increasing use of alternative investments and derivatives by pension funds and the opportunities and risk they present to the security and safety of retirement benefits.
The good practices are addressed to both pension funds and the public authorities responsible for their regulation and supervision. They encourage the establishment of robust and efficient risk-management policies and techniques to measure risks associated with this activity, the implementation of appropriate internal governance processes and risk control procedures, the conduct of due diligence investigation when assigning such investments to external asset managers and the promotion of open communication with shareholders on the results and costs of the use of alternative investments and derivatives. They also provide guidance with respect to specific legal/regulatory measures and supervisory policies to efficiently limit and monitor the risks of these instruments.
A MULTI-STAKEHOLDER PROCESS: The text reflects the views of representatives of the private pension regulatory and supervisory authorities of the 34 OECD countries, the countries that are observers to the OECD Working Party on Private Pensions (Brazil, Russian Federation and South Africa) and the 64 IOPS member countries involved in supervising private pension arrangements in 63 countries.
The draft good practices were made available for comment via an online public consultation which was open from 7 July to 9 September 2011. Comments received were taken into account before finalisation of the text.