What is the role of pension funds in financial markets?

Pension funds play a crucial role in financial markets by acting as institutional investors that manage and invest funds on behalf of individuals or organizations for retirement purposes. They pool together contributions from employees and employers, and then invest these funds in various financial instruments such as stocks, bonds, and real estate.

The primary role of pension funds is to provide a secure and reliable source of income for retirees. By investing in a diversified portfolio, pension funds aim to generate returns that can sustain pension payments over the long term. This helps individuals plan for their retirement and ensures financial stability during their non-working years.

Additionally, pension funds contribute to the overall functioning of financial markets by providing a significant source of long-term capital. Their large investment portfolios can influence the prices of securities and contribute to market liquidity. Pension funds also engage in corporate governance activities, exercising their voting rights to influence company decisions and promote shareholder value.

Overall, pension funds play a vital role in financial markets by facilitating retirement savings, supporting economic growth through long-term investments, and contributing to the efficient functioning of capital markets.