The impact of trustees' age and representation on strategic asset allocations

A board of trustees has the fiduciary duty to invest a pension fund's assets in the best interest of its beneficiaries. Trustees'characteristics should not affect their investment decisions. We find two counterfactual artefacts for corporate pension funds. First, a higher average board age lowers the strategic allocation to equity by 7 percentage points after controlling for the pension fund's characteristics. This way the strategic asset allocation does not fully reflect the beneficiaries'characteristics. Second, pension funds with a greater representation of employers on the board allocate more to equities. This fosters a principal-agent problem
between employer trustees and beneficiaries.

JEL classification: G11, G23.
Key words: Pension Funds, Asset Allocation, Pension Fund Governance, Agency Problems

Working paper no. 698