Proceedings

Cross-country performance comparative analysis has several faults that must be
highlighted:
� asset allocation between equity and bonds show a wide variation among
different countries;
� different levels of liquidity on capital markets make way for different asset
valuation methods;
� different calculation methods for rate-of-returns (reported returns gross of
management fees or net of management fees);
� Sharpe ratio can be used under the assumption that a riskless rate exist or if
proxies for it are used instead;
� regulatory environment;
� idiosyncratic characteristics of each country pension system.
The conclusion of Antolin’s study [2008] is that Sharpe ratios and Markowitz meanvariance
approach with historical data can be used to compare the pension plan
performance to artificially constructed benchmarks. However, in countries were
private plans have recently been implemented the historical data on which the study
might be based is scarce. Antolin [2008] suggests that progress should be done in data
collection as to enhance the development of international standards for the reporting
of pension fund performance that could support more in depth performance
evaluation.
5. RESULTS
At the present moment Romania uses short-term returns to measure performance for
pension funds (24 months periods). As mentioned by Antolin [2010], the high rates of
return exhibited by pension funds in developing countries might be related to high
interest rates in the economy or a country-specific risk premium arising from lack of
development of domestic capital market, making short-term returns not viable as a
pension performance measure.
Another major issue in the Romanian case is that there is no investment option that
can be regarded as a risk-free asset for long-term investors. Treasury bills might be
risk-free from a short-term point of view but on the long run they fail to provide
protection against reinvestment risk. Government bonds provide protection against
reinvestment risk (long-term bonds protect investors from reinvestment risk because
falls in interest rates are compensated with capital gains in the value of the bond) but
cannot manage the inflation risk. Viceira [2010] considers that true riskless assets for
developing countries are long-term inflation-indexed bonds but Walker [2010]
recommends the short-term bonds as an alternative for protection against unexpected
changes in inflation rates.
Private pension participants in Romania suffer from the capital market infancy.
Defined contribution plans imply that participants choose where to invest their
contributions, which exposes them to capital market risk arising from directly holding
the asset.
The strict regulation of the Romanian pension market can affect the overall
performance of a pension fund. Imposing the limits of asset allocation and relying
heavily on local investment assets induce myopia towards currency hedging. Holding
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