Regulatory proportionality in Brazilian pension funds in light of predominant sponsorship

Abstract

This article evaluates the results of the regulatory proportionality adopted in Brazil for closed supplementary pension entities classified as Systemically Important Entities (SIEs), emphasizing the predominance of sponsorship, whether public or private. The article also determines whether the approach benefited pension funds and the economic environment or proved unnecessary and costly. The researchers sought to assess the influence of governance on asset management, investment performance, and risk management. The study measured whether the effects of the new regulation are similar and positive among entities with predominantly public and private sponsorship. Brazilian pension funds are significant due to their "economic aspect" (they are institutional investors with R$1.3 trillion in assets in 2023, equivalent to 12% of gross domestic product) and their "social aspect" (they are linked to public policies and aspects related to individuals' pursuit of economic security tied to longevity, and they covered 3.9 million participants in 2023). This research contributes to regulators by suggesting that extending regulatory proportionality to other publicly sponsored funds is timely and beneficial. This would strengthen regulatory oversight and provide greater security to participants, sponsors, and financial and capital markets, thus mitigating risks to the economy. The study used continuous time series to analyze the trajectory of variables before and after the adoption of the new regulation. Estimation methods such as Kruskal-Wallis, differences-in-differences, and differences-in-differences-in-differences were applied, as well as principal component analysis. The results indicate that the benefits of regulatory dosimetry outweigh the incremental costs, and the new regulation protects participants, sponsors, and the market. However, it protects publicly sponsored funds to a lesser extent, as these funds have larger asset holdings and a greater number of participants. There is no evidence of regulatory inflation.