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CGFS report on institutional investors, global savings and asset allocation


The Committee on the Global Financial System is today releasing a report entitled Institutional investors, global savings and asset allocation. It was prepared by a working group chaired by José Viñals, Deputy Governor of the Bank of Spain.

Mr Viñals said that the portfolio decisions of institutional investors have a major impact on world financial markets. The main focus of the report is how recent and prospective regulatory and accounting changes in several countries might influence the investment decisions of such investors. These changes include moves towards fair-value accounting in pension funds and insurance, risk-based solvency requirements for insurance companies and a call for more transparency in company accounts about pension commitments and funding positions.

Mr Viñals highlighted the following points in the report:

While regulatory and accounting changes are increasingly global, their consequences are likely to differ significantly across different types of institutional investors and across countries as national conditions differ. Defined benefit pension funds (DBPF) and life insurance companies may be particularly affected because they directly bear investment risks. In contrast, defined contribution pension funds and mutual funds – where individuals directly bear investment risk – are not likely to be significantly affected.

Regulatory and accounting changes encourage DBPF and life insurance companies either to shift risks to households or to adopt lower risk investment strategies by directly incorporating liabilities into asset allocation decisions. In shedding risks from their balance sheets, institutional investors have thus followed a similar strategy to that of the banking sector.

No major portfolio shifts have yet been observed at a global level as a result of recent accounting and regulatory reforms and the latter therefore do not appear to be a major cause of the current low levels of global long-term interest rates. However, data, analysis and market research suggest that recent regulatory reforms have had an impact on long-term interest rates in the United Kingdom.

The impact of these reforms on financial prices across countries are expected to be more pronounced in those cases where: (i) the size of DBPF and insurers is very large; (ii) the initial asset allocations of pension funds and insurers are particularly weighted towards equities; (iii) their initial solvency positions and funding gaps are weak; (iv) the regulatory changes are profound and allow only a short transition period.

Overall these reforms are expected to enhance the functioning and stability of the financial system. However, the design of regulatory reforms should take into account the possibility that such reforms may temporarily distort prices in financial markets and could drive long-term interest rates below the levels justified by macroeconomic fundamentals. Consequently, this should be taken into account both when designing regulatory changes and when interpreting asset prices movements after their implementation.

The growing demand from global institutional investors for emerging market assets is likely to be positive for these economies and should contribute to the depth of local financial markets. This growing role, however, might alter the transmission mechanism of domestic monetary policy, especially if long-term bond yields become more dependent upon global factors.

As a result of the reforms, households are becoming increasingly exposed to financial markets. Retirement incomes in the future may thus become more subject to financial market volatility. This suggests that financial supervision and regulation as well as consumer protection have an important role to play.

Specific questions regarding the report may be sent to the Committee on the Global Financial System by e-mail ( or fax (+41 61 280 9100). For further information or to request a printed copy, please e-mail


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