The importance of market movements, asset allocation policy and active management for government pension funds – evidence from GPFG, CPP and GPIF

Abstract

The motivation behind this paper is to identify how important market movements, asset allocation policy and active management is for the Norwegian, Canadian and Japanese government pension funds’ returns. We use data from the funds’ financial reports to examine this importance in terms of variance, and further estimate how each fund’s active management contributes value to returns. Our results are in line with previous literature, namely that market movements explain the bulk of the variance in returns. Further, asset allocation policy and active management explain about the same amount. We also find evidence suggesting that two of three funds add value through their active management.