Pension Funds and Corporate Corporate Governance

Ricardo Escobar

Carey y Cia. Ltda.

Chile

The Questions

• Should and can Pension Funds promote adequate corporate governance?

• If so, do they need additional powers and special rules?

• And, how deep should it be their involvement in management?

The Basics

• Pension funds manage pension funds– Look for best return– Look for safe return– Look for liquidity

• Pension Fund corporate governance v/s third party corporate governance

The Chispas Case

Endesa Sp.Endesa Sp.CH 1CH 1 CH 2CH 2 LUZ

ENERSIS

ENDESA

The Endesa - Enersis Case

ENERSISENERSIS

ENDESAENDESACHILECTRACHILECTRA

Endesa Sp.Endesa Sp. Duke EnergyDuke Energy

OPA 1 x 51%

OPA 2 y 3

The Telefonica -Terra Case

You are late!

TELEFONICA Sp.TELEFONICA Sp.

TERRATERRA

TELEFONICA Ch.TELEFONICA Ch.

CTC InternetCTC Internet

Sale US $ 40

Comments and Conclusions

• Yes, Pensions Funds can and must promote sound corporate governance– They are owed to their clients who pay for it– They need deep and liquid securities markets

Comments and Conclusions

• Pension Funds are powerful players

• Strong minority shareholder rights, they don´t need additional rights

• Strong Pension Funds corporate governance rules

Comments and Conclusions

• Pensions funds cannot be controllers

• Pension funds must be alert to management

• Government must be alert to pension funds sleeping

• Pension investors must be given efficient actions against negligent pension funds management

Open Fire!