Variegated financialization and pension fund asset demand: the case of Colombia and Perú

This article seeks to explain concretely how one ‘variegation’ of financialization in the emerging economy setting is being shaped by the growth of domestic pension funds. Taking Colombia and Perú as case studies, we explore the evolution of pension fund demand subsequent to substantial pension policy reforms in the 1990s. Drawing on comparative political economy and the recent literature on subordinate financialization in emerging economies, we present a three-tiered conjecture regarding what is shaping pension fund demand: (a) the particular institutional context of ‘hierarchical market economies’ and neoliberal market reforms, (b) the ‘extraverted’ growth regime and (c) subordinate financial integration. The resulting demand calls forth financial innovation and movement towards market-based financial mechanisms as seen with financialization elsewhere, yet in this instance occurring largely outside of domestic capital markets.

Liability-driven investment and pension fund exposure to emerging markets: A Minskyan analysis

This paper explores the determinants and implications of the growing allocation of insurance companies and pension funds to emerging markets. The key contention put forward is that liabilities are at the core of the portfolio choice of insurance companies and pension funds, and that this has important consequences for the stability of asset demand. The paper supports this contention with a theoretical framework based on Hyman Minsky and the results from 22 semi-structured interviews with European insurance companies and pension funds’ executives, investment consultants, and asset managers. It shows that the rising insurance companies and pension funds’ demand for emerging markets’ assets has to be analysed in the context of the pressures resulting from structural funding deficits and low yields. Emerging markets’ assets are sought as part of the sector’s strategy to increase returns and, given their subordinate integration into a spatially uneven international monetary and financial system, remain not suited to directly meet insurance companies and pension funds’ liabilities. This causes insurance companies and pension funds’ demand for these assets to be volatile and independent of conditions in these countries, reproducing emerging markets’ monetary and financial subordination. By stressing the structural financial (in)stability implications insurance companies and pension funds’ liabilities have for emerging markets’ asset demand, the paper contributes to the literature on insurance companies and pension funds’ investments in emerging markets and bridges the gap between those which have noted the importance of liability conditions for insurance companies and pension funds and the literature pointing to the destabilising impact of insurance companies and pension funds due to behavioural and agency issues. Moreover, by basing itself on a Minskyan theoretical framework, it responds to recent calls for a more systematic incorporation of heterodox economic thought into financial geography.

Foreign Safe Asset Demand for US Treasurys and the Dollar

We present theory showing that the spot dollar exchange rate reflects the value of all future convenience yields that foreign investors assign to US Treasuries. The convenience yield also creates wedge, the Treasury-based dollar basis, between the yield on foreign bonds and the currency-hedged yield on US Treasury bonds. We use the Treasury basis to measure the foreign convenience yield and show that an increase in the basis coincides with an appreciation of the dollar, consistent with the theory. The variation in the Treasury basis accounts for 25 percent of the quarterly variation in the dollar between 1988 and 2017.