Study On The Investment Of The Individual Account Pension Fund In China

Aging of the population has become or is becoming a worldwide problem.lt will bring about substantial impact on the macro economy, finance, financial and social aspects of the country that face with such an issue,which will undoubtedly produce unprecedented challenges for policymakers.Pension system will stand in the breach to face the stirkes and challenges,and it is in urgent request for fundamental reformation. Overall plans and personal account system have risen in response to the proper time and conditions.Whether the thorough reform of Chile, or the most OECD countries’ localised and structural reform,the most direct intentions all originated from the capital expenditures problems,in other words,the imbalance of the financial problems,which were generated from an aging population. Fund of individual account annuities system has exactly come into being under such a context. One reason for supporting the fund system reform is to obtain considerable income through the investment operation of the pension funds,the increment from which will be helpful for improving the financial difficulties caused by the aging population.Certainly, we know that wheather the pension fund investment will obtain income as expected is actually influenced by the capital market and other various environmental factors, in which there exists many uncertainties.The professional knowledge and skills of the investment operationers will directly influence the investment results.Thus, the success or failure of the investment will not only determine the success or failure of the pension system reform,but also further determine the civil retirement welfare,even further affect the overall economic and social stability.At the beginning of the basic old-age insurance system,China paied on demand with the individual account,thus made the individual account exist in name only.Apart from this,even after the individual account became in reality,according to China’s present conservative investment strategies of the endowment insurance (current individual endowment account funds still mainly follow with the one-year bank deposit interest), we can now predicate the failure of the overall plans and personal account system.Because the current situation of low income will not be changed without marketing operations.The low income will not satisfy the substitutional level of the pension of the retirees designed by the policymakers,and will even bring about risks of depreciation to the funds paied by the participants,which will result in biger and biger financial gap in individual endowment fund account. So the core goal of the individual account fund management is to obtain more investment gains as far as possible based on the maximized safety.Without the realization of this goal, individual account for basic old-age insurance system will perform practically no function.Start from this practical problem, this paper centers on the individual endowment fund account. Namely, how to realize the optimal asset allocation through the scientific investment decision and practice exerted by the professional asset management institutions,in the precondition of controlling risks,in order to improve income as far as possible.All this is in the core proposition during the theoretical and empirical studies. And then, based on the reality of the investment environment of China, we should learn from the foreign experiences in the investment of the individual account fund.At the same time, there is a prospective research on the innovation of optional financial investment tools for China’s individual account fund.This paper bases on the characteristics of China’s pension fund itself,and its realistic financial market background,to explore the theoretical and practical problems of the investment. It combines dynamically the asset allocation theory superior in practice and the investment philosophy superior in abstraction,in order to construct a solid investment system for individual account fund and so as to achieve an optimal risks and benefits match. Obviously, it proposes severe challenges to both the policymakers and the professional asset investment management organizations which are in charge.The paper has eight chapters:The first chapter is an introduction to this research.It analyzes and discusses the background, research status at home and abroad, research objective, main contents, research methods and the innovation points.The second chapter makes a simple comparison between the institutional investors and individual account fund inverstors.Based on the comparative analysis of the development history and present situation of the foreign institutional investors,as well as the characteristics of them,it summarizes the particularity of the investors of the individual account fund which is distinguished from other institutional investor’s.The third chapter makes comparison analyses of the investment environment for the individual account fund.In the first place,we studies the the interactive relationship between the pension funds and capital market theoretically and empirically.It proves that the two has shaped a good interaction in America, Britain and Canada,in which market had dominated.If in a country,pension funds and capital market evolve respectively along the evolution of marketization in a relatively perfect financial system,then even in relatively backward country,benign interaction between the pension funds and capital market will also be expected.According to the analyses,it further demonstrates that it is necessary to invest China’s individual account fund in capital market.At the same time,through the examination of the specific environment of China’s capital market,it argues the feasibility of the investment of the individual account fund in capital market.Of course, investment of the individual account fund under China’s capital market environment is able to get some enlightenment from states with mature market.This chapter draws lessons on the bases of summarization.The fourth chapter discusses the equity problem under the mean reversion perspective of individual account fund investment. This is mainly on account of the equity for the pension funds, because a lot of empirical study shows that institutional investors led by pension fund investors have widespread equity preference.And the equity market—the stock market in this paper is characteristic of mean reversion,so we return to construct a systematic optimal model for the equity investments of the individual account fund under this perspective.Through the reflection on the OECD countries’ pension fund asset allocation around the financial crisis and the case study on China’s strategic reserves of pension fund-the national social security fund investment in the secondary market shares,we have reason to believe that the mean reversion perspective will bring new views and methods to individual account fund investment.The fifth chapter makes a thorough study on the diversification of the investment of the individual account fund.It discusses the positive role of the diversified investment in securities investment and risk management of the individual account fund.It constructs a diversified investment system based on the metrology model.At the same time,it also considers from the angle of the dynamic time-varying correlations (or the asymmetry in various risks relevance) about the asset-allocation decisions application problems.The sixth chapter discusses global asset allocation of the pension funds from the perspective of one country to the global.Based on the summarization of the international experience in this,it considers the problem of the global asset allocation of China’s individual account fund prospectively. Because we are convinced that with the improvement of China’s pension fund system and the accumulation of pension fund,the internationalization of individual account fund investment will become true sooner or later.The seventh chapter focuses on the risk monitoring system for China’s individual account fund investment.Firstly,it makes an empirical research on the securities investment risks under the perspective of the asset price fluctuation theory.We believe that the asset price fluctuations is a potential source of investment risks,and we must have an overall grasp on it.Then,based on the history and empirical analysis of the key factors that influence China’s capital market,we construct an investment risk monitoring system,and make quantitative test on the effectiveness and the scientificity about it.The eighth chapter makes some foundamental conclusions according to the above analyses,and further puts forward some suggestions pertinently.First, the individual account pension fund bears the mission of providing appropriate retirement benefits for those who participate in the formulation and improvement of the internal system. This mission calls for maintaining and increasing in value with professional investment institution and scientific asset allocation. Therefore, if only because the individual accounts of pension funds have a higher degree of risk aversion, then do not enter the capital market on investment. It is clearly not desirable. The current overly conservative investment not only can not achieve a new the social pooling and individual account combination system, but also the system is more likely to be locked in a state of inefficiency, and even makes the system collapsed because of unsustainable. A basic conclusion is that, since the selected part of the accumulation of new pension system, then, without any doubt, it is inevitable to choose individual account pension funds with the market-oriented operation and effective asset allocation.Second,although China’s transitional economy is still not completely finished, the market economy is still not completely to establish and inperfect,meanwhile,the capital market scale is too small and immature,we have to see that it is improving constantly. So the investment space for the individual account fund is huge and it has broad prospect.Third,for the individual endowment account funds investment,a basic and core question is:how to obtain more and better investment returns as far as possible by controlling the risk in the range of endurance.On the basis of these, we can consider some other functions of the pension fund,such as the social responsibility investment in popular now.But it should not damage its original purpose and focus target,that is to say that it must be clearing the objectives and stressing the focal points based on the overall balance.Fourth,scientific and reasonable asset-allocation decisions are indispensable for the success operation of the individual endowment account fund.We believe that the introduction of the mean reversion perspective to the investment will provide us with a new view,which will help us to reach dynamic rebalance according to the estimated value,thus to upgrade investment performance maximally.In addition,diversity as a scientific and reasonable method will effectively disperse risks.As long as it applied properly,it will provide tremendous help for the individual endowment account fund investment.Finally,under the situation of the global economy and financial integration,individual endowment account fund investment should have a global view based on the country itself. So as to obtain more resources from the global capital market,and to get better risks and benefits ratio;Mean while, in order to help individual account pension fund to provide risk monitoring and treatment, we should implement systematic risk control in the whole process of the investment, and construct a systematic risk early warning system and processing system.If the above three methods or tools and a risk control system can be used appropriately,the investment performance of pension funds will be able to reach the greatest extent,In other words, the the core goals of the chinese individual accounts pension funds investment-the optimal balance of the safety and profitability-will be completely possible to achieve.Firstly, the author builts three investment subsystems and a risk monitoring system by combining individual account of pension funds of China and China’s Capital Market to ensure maximum realization of dynamic optimization of balance between the risks and benefits of individual account pension fund. For example, equity investment of pension funds in the view of average regression can bring a new perspective on investment. Diversified investment system and the global asset allocation system can maximize the diversification of risk. At the same time, by constructing an unstructured VAR model, it can maximum reveal the dynamic relationship between risk assets (especially the stock market) and its affected variables. Based on that, the paper can construct a corresponding risk alarming system.Secondly, the paper does not simply follow suit the experiences and achievements from the west,and it rises to the level of philosophy. In view of the system theory,it combines organically the physical and metaphysical worlds.Under the guidance of China’s classical philosophy,it intergrates via media in philosophy and the mean regression rules in capital market under the perspective of organic synthesis,and combines with China’s specific investment environment to establish an investment system,which is different from the western orthodox asset management theory,but more in accordance with financial market actual situation,especially with China’s investment environment.Finally,this research explains that the value investment theory, trends theory and big band theory are perfectly unified under valuations from the perspective of theory and practice.In essence,the value investment and operations of band are able to be integrated. Because the essence of the value investment is to buy with a very unreasonable low price,and to sell out with a very unreasonable high price after holding for a long time.This will clear one wide-spread false belief that equals the value investment to holding at all hazards,and equals band operations to frequent buy-and-sell.In fact,nothing is absolutely unchangeable just like market professionals all know that investment and speculation in the capital market is impossible to totally sepatate,not as they are in theoretical analysis in ivory.It is just a problem about the combination to a certain degree.The value investment we emphasize is to build a big band from a very unreasonable low price to a very unreasonable high price,which itself is a big trend, the three intergrate in valuations.Of course, the research also has many shortcomings, many of the conclusions and some of the programs are just the rough outline of the framework. However, whether in practice the real value of its guidance remains to be seen, which not only for objective reasons but also for subjective reasons. Objective reasons such as individual account of pensions in China still running empty account and funds accumulated negligible, naturally, let alone the real access to capital markets. This makes us even not to summarize the experiences of individual account pension fund investment in China. From the subjective aspect, it is more for the loss and lacking of personal knowledge and practical experience. The author hopes further researches on these issues in the future study and work in order to gradually improve the results of this study.