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- Title
PUBLIC WEALTH MAXIMIZATION: A NEW FRAMEWORK FOR FIDUCIARY DUTIES IN PUBLIC FUNDS.
- Authors
Rose, Paul
- Abstract
This Article challenges the standard doctrine that public pension funds should be managed solely for the benefit of plan participants and their beneficiaries. Instead, economic logic suggests that public pension fund trustees owe their duties to the public collectively. This analysis is driven by the fact that, in practice, individual pension fund claimants function more like senior creditors than the residual claimants that are the typical recipients offiduciary duties, and that the public-and current and fu ture taxpayers specifically-are the true residual risk bearers for public pension funds. This reframing of fiduciary duties in public funds has dramatic consequences for the investment policies of the funds. Most importantly, a shift in the locus of fiduciary duties to public wealth maximization will require fund managers to more fully consider the externalities accompanying their investments, which should serve to help them fully and accurately price their investments. Private investors might ignore certain negative effects, such as uncompensated harms from pollution or depleted natural resources, because the government absorbs the costs of such externalities. Indeed, a strict fiduciary duty to act in the interests of the fund would obligate a private investor to ignore such externalities, so long as they do not negatively affect the returns of the fund's investments. The government- and by extension, the public whofunds the government-that absorbs the cost of these externalities, however, should view investments differently. They should view it with an eye to minimizing negative externalities, particularly those that are significantly more expensive to remediate than to prevent. Similarly, a strict reading of fiduciary duty would suggest that funds should ignore positive externalities from investments that benefit society but not the plan participants. A focus on public wealth maximization would suggest that positive externalities should also be taken into account in investment decisions, which might, as a consequence, result in more investment in sustainable enterprises and long-term projects.
- Subjects
FIDUCIARY responsibility; PUBLIC pension trusts
- Publication
University of Illinois Law Review, 2018, Vol 2018, Issue 3, p891
- ISSN
0276-9948
- Publication type
Article