Abstract

Principal-Agent Relationships and Pension Fund Portfolio Selection

A. Lavigne and N. Mekkaoui

University of Orleans

This paper deals with the principal-agent relationships involved by the management of pension funds. The focus is made on private defined benefit pension funds in the US. We first underline the main characteristics of management and financial policy : sponsorship, funding, investment, ownership of surpluses. We then identify the principal principal-agent relationships in a context of asymmetric information : we first deal with the internal management where the sponsors manages the fund, then turning to external management where funding and investment policies are delegated to an independant manager. In a last section, a principal-agent model shows that the delegation of portfolio selection may increase risk taking to the detriment of the pension beneficiaries.