Assessment of Investment Regulation and its Effectiveness in the Latvian State Funded Pension Scheme

This paper assesses the effectiveness of investment limits in the Latvian state funded pension scheme and their impact on portfolio diversification, investment opportunities, and investments in the Latvian capital market. Using qualitative analysis of legal provisions and quantitative multi-factor regression, the study finds that strict concentration limits – particularly on individual equity holdings – restrict investments in the Latvian economy and might hinder exposure to key risk factors such as size and value. Policy recommendations include easing concentration and exposure limits, adopting a look-through approach for investments in investment funds, and expanding access to alternative assets.

Keywords: investment regulation, defined contribution pensions, portfolio construction
JEL Codes: G18, G11, H55