engleski

Evaluation of Croatian Pension Funds' Performance – Old Approach Versus the New One

A very important element of the pension insurance system based on capitalized savings is the return rate of pension funds. The financial performance of their investments directly affects the amount of accumulated funds and future pension of the insured person. As a new approach to evaluation of the financial performance of pension funds has been developed recently, this paper aimed to conduct both traditional and modern analysis of the financial performance of mandatory pension funds in Croatia and to compare the results. The traditional analysis is focused on the preparation and calculation of financial ratios that indicate the risk-adjusted success of the investment (Sharpe, Sortino and information ratio). Since the integral element of the traditional analysis is the choice of reference value (reference portfolio), the reference value developed by the author for the purposes of his doctoral dissertation was used. The modern approach to financial performance evaluation uses data envelopment analysis (DEA) that assesses whether the observed decision-making units (pension funds) are efficient in the process of converting inputs into outputs. This efficiency is relative because it evaluates success based only on a set of observed units, and not in relation to some absolute, externally given value. The MaxDEA 7 program was used to perform the analysis. Each category of mandatory pension funds was analyzed separately by using monthly data ending with December 2019. Based on the results of the analysis and the consequent ranking of mandatory pension funds, it can be concluded that the traditional and modern approach equally evaluate the performance of funds. Namely, the results do not confront each other, although they are not identical. Therefore, these two approaches cannot be considered as substitutes, but as complementary approaches, as one emphasizes the absolute and the other the relative aspect of the performance measurement.

pension funds, Croatia, financial performance, risk-adjusted ratios, data envelopment analysis

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