Pension Funds.

This article assesses and discusses pension fund developments in the U.S. as of September 1977, as viewed from the perspective of a professional investment manager. A pension fund can be broadly defined as a plan established and maintained by an employer primarily to provide for the systematic payment of benefits to employees after their retirement. There are four major factors which influence pension fund investment policies. First, all income and capital gain of pension fund investments are tax-exempt while in the hands of the trustee. Second, until recently, there have been no legal restrictions on pension fund investing other than the usual fiduciary principle that a trustee must deal at arm's length with the trust, making no personal profit from its operation other than the regular service fee. Third, the manager is usually relatively unhampered by liquidity considerations until a pension plan is quite old. Fourth, there is usually a strong incentive for the investment manager to try to maximize investment return and thereby reduce the employer's cost. Pension trustees has become increasingly aggressive in their investment policies with the passage of time. Twenty-five years ago, when the pension movement was in its infancy, safety dominated thinking in the field, and investments were confined largely to government bonds and Aaa-to-A rated corporate bonds. Slowly but steadily, it began to be recognized that pension trusts were ideally suited to undertake common stock investments because of the long-term nature of their liabilities and their slight liquidity needs.