문서에서 Long-Term Finance (페이지 134-146)

Bank and Nonbank Financial Institutions as


INVESTORS: THE CASE OF CHILE This section describes the differences in the maturity structure of Chilean nonbank in-stitutional investors and analyzes the factors that lie behind them. The analysis is based on Opazo, Raddatz, and Schmukler (2015), which used unique monthly asset-level data on Chilean domestic bond mutual funds, pension funds, and insurance companies dur-ing 2002–08. This was a period with stable growth in capital markets and in overall economy and is thus ideal for investigating the extent to which these nonbank fi nancial institutions invest long term as the global cri-sis did not hit Chile until 2009. In addition, because these investors operate in the same the reforms will be to increase the amount

of regulatory capital for such transactions and to dampen the scale of maturity trans-formation risks. The overall effects will vary depending on several factors—in particular, the alternative funding sources in different markets segments. In this regard, concerns have been raised that the impact on devel-oping countries could be more severe, since these countries have less-developed markets and fewer nonbank fi nancial intermediaries and, therefore, would suffer more if banks cut back on long-term fi nance as a result of these regulatory changes.

The impact of ongoing regulatory changes should be monitored carefully, but in the meantime government policies that help banks access stable sources of funding might be de-sirable. These policies may include improving fi nancial inclusion to grow banks’ depositor bases, promoting banks’ issuance of covered bonds, and having banks improve their fi nan-cial reporting on liquidity and other risks as well as strengthen accounting and auditing BOX 4.2 The Basel III Framework (continued)

The liquidity component of Basel III consists of two new ratios: the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). Under the LCR, banks are required to hold sufficient high-quality liquid assets (HQLA) that can be converted into cash to meet all potential demands for liquid-ity over a 30-day period under stressed conditions.

The numerator contains two categories of easy-to-sell asset classes. Level 1 assets include government bonds, cash, and certain central bank reserves. Level 2 assets include long-term securities such as corpo-rate bonds and covered bonds corpo-rated A+ to BBB–, certain equities, and mortgage-backed securities that meet specifi c conditions. The denominator is the dif-ference between total expected cash outfl ows minus total expected cash infl ows during the 30-day stress scenario. The ratio must be at least 100 percent.

The NSFR aims to promote resilience over a one-year time horizon by ensuring that long-term assets are funded with at least a minimum amount from a stable funding source. In particular, loans with

a maturity greater than one year are to be covered by stable funding with a maturity greater than one year (for example, bank equity and liabilities such as deposits and wholesale borrowing).

The Financial Stability Board (FSB) has analyzed the potential consequences of Basel III for long-term fi nancing (Financial Stability Board 2013) and does not anticipate any direct effects on long-term loans from the introduction of the LCR. The board notes, however, that in order to meet the LCR requirement, banks may prefer to hold certain liquid assets that are treated more favorably under the HQLA defi ni-tion (such as sovereign bonds). The FSB expects that the NSFR allows for considerable maturity transfor-mation since a long-term loan can be fully funded with bank liabilities of one year or greater, but it rec-ognizes that if the long-term loan is funded through short-term deposits or other liabilities (that are regu-larly rolled over), the maturity mismatch will need to be covered by lengthening the term of funding, by reducing the maturity of loans, or both.

long-term local currency and infl ation-indexed bonds. Many high-income and developing countries have followed the Chilean example and have reformed their pension regimes, shifting away from DB schemes toward pri-vately managed DC plans (Antolín and Tapia 2010; OECD 2013b). Figure 4.4 shows that the DC system is the most-used scheme nowa-days in many members of the OECD.

The kind of regulations adopted in the Chilean pension fund system are not Chile-specifi c and are typical of systems that have DC pension programs, where the regulator wants to ensure the safety of public savings.

For example, the Chilean regulation estab-lishes a minimum return band that pension funds must guarantee. This type of guaran-tee is common in Latin American countries, and it also has been used in Central European countries (Castañeda and Rudolph 2010) and in high-income countries (Antolín and others 2011). Chile, therefore, stands as a bench-mark case, and the numerous challenges faced by the Chilean policy makers shed light on the diffi culties of developing long-term fi nancial markets.

The Chilean evidence challenges the expec-tation that institutional investors across the macroeconomic and institutional

environ-ment and have access to the same set of in-struments, their comparison allows observa-tion of their different behavior. The data on Chilean mutual funds’ and insurance compa-nies’ holdings came from the Chilean Super-intendency of Securities and Insurance. The data on Chilean pension funds came from the Chilean Superintendency of Pensions.

Although the private pension industry in developing countries is typically small—man-datory state-owned pension schemes domi-nate the landscape—a few economies such as Chile have large pension systems covering most workers. Chile was the fi rst country to adopt, in 1981, a mandatory, privately man-aged defi ned contribution (DC) pension fund model by replacing the old public defi ned ben-efi t (DB) system. Since then, pension funds have become very large, holding most of the population’s long-term retirement savings.

Chile also has developed other institutional investors and has provided a stable macroeco-nomic and institutional framework for long-term fi nancing to fl ourish. On the demand side of funds, Chile introduced several reforms to foster capital market development, leading to a varied range of securities issued, including

Defined benefit / Hybrid-mixed Defined contribution

Share of total pension fund assets, %

0 20 40 60 80 100

Chile Estonia Czech Republic

FranceGreeceHungaryPoland Slovak Republic

SloveniaDenmark Australia Italy

Mexico New Zealand

Iceland United States

Spain Turkey Israel

Korea, Rep.LuxembourgPortugalCanadaFinlandGermany Switzerland FIGURE 4.4 Relative Shares of Defi ned Benefi t and Defi ned Contribution Pension Fund Assets in Selected Countries, 2013

Source: OECD 2014b.

Note: Selected countries are members of the OECD. For the United States and Canada, data refer to occupational pension plans only. For Luxembourg, data refer to pension funds under the supervision of the Commission de Surveillance du Secteur Financier (CSSF) only.

The short-termism of pension funds is not constrained by the supply side of instruments.

Chilean asset managers choose short-term instruments even when assets for long-term investments are widely available and held by other investors. In particular, pension funds do not exhaust the supply of long-term gov-ernment and corporate debt instruments.

Moreover, individual biddings at government paper auctions suggest that pension funds bid less aggressively for long-term instruments, both relative to other instruments and relative to insurance companies.

The incentives faced by these investors ap-pear to be essential to understanding their different preferences for debt maturity struc-tures. In this sense, the comparison between insurance companies and pension funds is particularly illustrative because, in principle, both should be long-term investors. Insur-ance companies provide mainly long-term annuities for retirement, while pension funds invest for the retirement of their affi liates. In-deed, upon retirement individuals can choose between buying an annuity or keeping their assets in a pension fund and gradually draw-ing the principal accorddraw-ing to a program that considers expected longevity. Despite the similarity in their implicit operational goals, given their different natures (open- and closed-end) and the monitoring exercised by the underlying investors and the regulator, these intermediaries face very different incen-tives, which lead to different maturities pro-fi les. These incentives are analyzed in more detail in box 4.3.

The short-termism of pension funds has im-portant consequences for future pensions. In fact, some discussions have started to emerge in Chile and elsewhere (BIS 2007a; The Econo mist 2014a) about their pension system and how to reform it given the lower-than- expected replacement rates. According to some estimates, the amount in the average 65-year-old pensioner’s account is $55,000. With an expected remaining life of 15 years, that amount is equivalent to about $310 a month, or one-third of the average salary in Chile.

Chile’s experience shows that the develop-ment of large and sophisticated intermedi-aries with deep pockets does not guarantee board would help lengthen the maturity

struc-ture and raises the question of what lies behind their short-termism. While the presence of these investors has played an important role in improving market depth and in increasing pri-vate savings, their contribution to the length-ening of fi nancial contracts seems limited.6 In particular, the evidence shows that Chilean as-set-management institutions (mutual and pen-sion funds) hold a large amount of short-term instruments and overall invest shorter term relative to insurance companies (fi gure 4.5).

Both mutual funds and pension funds invest more than half of their portfolios in maturi-ties of three years or less, whereas insurance companies invest a little more than one-third of their portfolios in these shorter-term ma-turities. The differences are even starker at the longer maturities. As a result, average matu-rity for insurance companies (9.77 years) is more than double that of mutual funds (3.97 years) and pension funds (4.36 years). Rela-tive to outstanding bonds, mutual and pension funds also invest shorter term.


Insurance companies 9.77 Domestic mutual funds 3.97 Pension fund administrators 4.36

b. Average maturity, years

Share of total portfolio, %

Years to maturity a. Share of total portfolio

0 5

<1 1–3 3–5 5–7 7–10 10–15 15–20 20–30


Source: Opazo, Raddatz, and Schmukler 2015.

Note: The maturity structure is calculated for each mutual fund, insurance company, and pension fund administrator at each moment in time using monthly bins. Then the maturities are averaged across each set of investors and then averaged over time. The sample period is September 2002 to June 2008.

FIGURE 4.5 Differing Maturity Structures of Chilean Institutional Investors

BOX 4.3 What Drives Short-Termism in Chilean Mutual and Pension Funds?

Although identifying the ultimate underlying factor is diffi cult, the shorter investment horizon of Chilean open-end mutual and pension funds compared with insurance companies seems to result from agency fac-tors that tilt managerial incentives.a In Chile, manag-ers of open-end funds are monitored in the short run by the underlying investors, the regulator, and the asset-management companies. This short-run moni-toring, combined with the risk profi le of the available instruments, generates incentives for managers to be averse to investments that are profi table at long hori-zons (such as longer-term bonds) but that can have poor short-term performance. In contrast, insur-ance companies are not open-end asset managers, receive assets that cannot be withdrawn in the short run, and have long-term liabilities because investors acquire a defi ned benefi t (DB) plan when purchasing a policy. Thus, insurance companies are not subject to the same kind of short-run monitoring.

In the case of mutual funds, their short-termism is driven mainly by the short-term monitoring exercised by the underlying investors. In particular, Chilean mutual funds are subject to signifi cant redemptions related to short-run performance. For example, dur-ing the 2002–08 period, mutual funds in Chile were exposed to much greater outfl ows than were mutual funds in the United States. This short-run monitoring might explain why these funds avoid investing in long-term bonds, which may have poor short-long-term perfor-mance, and prefer to invest in shorter-term bonds.

Because saving for retirement is mandatory, fl ows to pension funds tend to be very stable, even during crises. That is, unlike mutual funds, pension funds are not exposed to significant outflows. Neverthe-less, within the same pension fund, investors might transfer funds across different fund managers seek-ing higher performance. Da and others (2014) showed that, in Chile, individuals often reallocate their investments between riskier funds (holding mostly stocks) and funds that hold mostly risk-free govern-ment bonds. Pension fund contributors, in an appar-ent effort to “time the market,” frequappar-ently switch within funds following the recommendations issued by a popular investment advisory fi rm. In response to this behavior, pension fund managers have signifi -cantly reduced their holdings of stocks and bonds and have replaced them with cash to avoid costly redemp-tions resulting from frequent portfolio rebalancing.

The regulatory scheme seems to be another fac-tor behind the short-termism of pension funds. The

Chilean regulation establishes a lower threshold of returns over the previous 36 months that each pension fund needs to guarantee. This type of short-term monitoring seems to push managers to move their investments into portfolios that try to minimize the probability of triggering the guaran-tee (Randle and Rudolph 2014). Moreover, because this threshold depends on the average return of the market, it may generate incentives to herd (Raddatz and Schmukler 2013; Pedraza, forthcoming) and to allocate portfolios suboptimally (Castañeda and Rudolph 2010).

The minimum return rate might be driving the equilibrium toward the short term because, even when a manager’s portfolio is close to that of peers, small differences in holdings of more volatile longer-term securities may increase the manager’s exposure to the peer-based performance penalty. Moreover, to the extent that longer-term bonds are less liquid, these bonds might be harder to rebalance because traders may find it difficult to either enter or exit these positions at their requested price, experience execution delays, or receive a price at execution sig-nifi cantly different from their requested one. There-fore, longer-term bonds might hamper the ability to follow the changes of the market, increasing the exposure to the peer-based penalty.

Whereas this type of short-run monitoring can play a role in open-end funds, it is unlikely to affect insurance companies. These companies are not eval-uated on a short-term return basis by investors who can redeem their shares on demand, and the com-panies are not required to be close to the industry at each point in time. Instead, the maturity struc-ture of the insurance companies’ assets seems to be determined by that of their liabilities. Insurance com panies have long-term liabilities because they mostly provide annuities to pensioners. Thus, the need to meet these liabilities gives them incentives to hold long-term assets. In contrast, mutual funds and pension funds are pure asset managers and have no liabilities beyond their fi duciary responsibility.

In sum, the long-term nature of their liabilities shapes the incentives of the insurance companies toward portfolios with longer maturities. In contrast, given the lack of a liability structure, the incentives of Chilean pension and mutual funds to take matu-rity risk are determined mainly by the constant mon-itoring exerted by the underlying investors, their own companies, and the regulator.

a. See Opazo, Raddatz, and Schmukler (2015) for a more detailed analysis.

the minimum return that pension funds must guarantee was changed from 12 months to the current 36 months, presumably giving pension funds more fl exibility to deviate in the short term from their peers and to invest longer term. The change did not have the expected result, however, and the maturity structure of pension funds did not vary sig-nifi cantly. Alternative performance measures based on risk-adjusted returns, as opposed to peer-based benchmarks, should be more con-ducive to lengthening the maturity structure of pension funds’ portfolios and at the same time should eliminate some of the pervasive incentives that lead to herding among these managers. The regulatory authority needs to focus on aligning the long-term objectives of the fund contributors with the sometimes short-term objectives of fund managers.


Although the mutual fund industry has been growing in developing countries during the last decade, it is still dominated by high-income countries. Assets under management of mutual funds domiciled in developing coun-tries more than doubled between 2006 and 2013. However, these still represent a small fraction of mutual funds’ assets worldwide:

funds in high-income countries controlled over 90 percent of mutual fund assets, with more than $28 trillion under management in 2013 (fi gure 4.6a). The regional distribution also remains highly uneven, with the United States accounting for half of the total assets worldwide and a couple of European coun-tries accounting for almost one-third (fi gure 4.6b). Still, in some developing countries, such as Brazil, the mutual fund industry has been growing fast and is rather large.

In recent years, the importance of interna-tional mutual funds has been growing.7 This growth is attributable mainly to investors in high-income countries who have increasingly sought to diversify their portfolios by invest-ing in other countries, includinvest-ing develop-ing ones, often through dedicated emergdevelop-ing markets funds or through increased emerging market participation by globally active funds an increased demand for long-term assets.

Merely establishing asset management insti-tutions and assuming that managers will in-vest long term does not appear to yield the expected outcome, especially if the policy contexts involve a similar type of market and regulatory short-term monitoring to that in Chile. For pension funds, Chilean policy makers have tried unsuccessfully to make the system more conducive to long-term in-vestments. For example, in October 1999 the average real rate of returns for calculating

Europe Americas (excluding

Share of total assets, %

U.S. dollars, billions

a. By degree of development

b. By region

2006 2007 2008 2009 2010 2011 2012 2013 500

FIGURE 4.6 Worldwide Total Net Assets Held by Mutual Funds by Degree of Development and Region

Source: Investment Company Fact Book 2014, Investment Company Institute, Washington, DC, http://www.icifactbook.org.

Note: The sample period for panel b is 2013. The classifi cation between high-income and develop-ing countries is based on the World Bank classifi cation of countries as of 2012.

a. Argentina, Brazil, Canada, Chile, Costa Rica, Mexico, and Trinidad and Tobago.

(Gelos 2011). This trend coincides with an extended period of low interest rates in high-income countries, which has led investors to look for higher-yielding assets in developing countries. Emerging Portfolio Fund Research (EPFR) data show that assets under manage-ment of emerging markets’ equity funds in-creased from $702 billion at the end of 2009 to $1.1 trillion at the end of 2013, and bond funds quadrupled from $88 billion to $340

(Gelos 2011). This trend coincides with an extended period of low interest rates in high-income countries, which has led investors to look for higher-yielding assets in developing countries. Emerging Portfolio Fund Research (EPFR) data show that assets under manage-ment of emerging markets’ equity funds in-creased from $702 billion at the end of 2009 to $1.1 trillion at the end of 2013, and bond funds quadrupled from $88 billion to $340

문서에서 Long-Term Finance (페이지 134-146)