The paper evaluates the economics of foreign investment regulation for pension funds, with a focus on developing countries, where fully-funded pension systems are being started de novo. The analysis produces three observations. First, the benefits of global portfolio diversification apply particularly to developing-country pension assets because the volatility of asset returns is high while the risk tolerance of pensioners is low. Second, restrictions of foreign investment by domestic pension funds can hardly be justified on grounds of financial-development arguments: cross-country evidence which little support for the claim that the accumulation of pension assets would provide strong externalities for financial development. Moreover, the home bias generally observed in pension fund investment should translate into sufficient potential demand for domestic financial assets so as to deepen markets and develop the institutional infrastructure. Third, a case for initial localisation ...