Institutional Investors, Corporate Governance and Pension Funds

This paper presents an analysis on how the expected development of pension funds in Italy will contribute toenhance corporate governance. The existing evidence on this issue comes mainly from the Anglo Saxon countries but it does notshow unequivocal effectiveness of activism on firm performance. In Italy the current design of pension funds governance substantially mirrors that of UK, where pension funds as well as life insurance companies show a preference for passivity instead of activism. Evidence from countries such as Japan and Israel, that are similar to Italy from a corporate governance point of view, is also included in order to better understand the perspectives for Italy. All in all, the private funds industry seems to be characterized by several group-affiliated institutional investors whose investment policy is likely to be plagued by conflicts of interest similar to those existing in Japan and Israel. Supervision by market authorities and performance-related managerial compensation would help mitigating this problem.