ABSTRACT
This introduction presents an overview of the key concepts discussed in the subsequent chapters of this book. The book explores the different functions for administrative and investment costs, which incorporate varying assumptions about the shape of the underlying average-cost function: particularly, U-shaped versus monotonically declining. It discusses how complexity of the pension plans and higher service levels may also contribute to administration costs. The book also discusses the implications of mean reversion in stock prices for long-term investors such as pension funds. It examines the impact of participants' age distribution on the asset allocation of pension funds, using a unique dataset of Dutch pension fund investment plans. The book also presents some indicators of investor sophistication. These indicators show that pension funds' strategic portfolio choices are often based on rough and less sophisticated approaches. The book explains the relevance of the conflicting incentives for pension funds and insurance firms.
