In many countries, the assets of pension funds are likely the greatest reservoir of capital and able to wield significant power in financial market. They have been recognized as potential sources of funds for economic or social developments. In particular, those governments in fiscal difficulties have looked to pension funds with growing interests to influence the use of their assets in a way that promotes economic, social, and political goals. Consequently, as a means to stimulate economic development, many states have adopted policies to provide incentives for, or require, pension funds to invest in in-state ventures. For example, such a policy is likely to require the trustees of a pension fund plan to invest a certain percentage of a fund's assets in the stocks of in-state corporations. In compliance with government requirements, a preference for investments that stimulate local economic development are generally categorized as "economically targeted investments"or sometimes referred to as "politically targeted investments."
All pension funds are established for the benefit of the pension plan participants and beneficiaries. In this connection, it is critical task to ensure market returns and security of pension funds' assets in the event of economically targeted investments made by funds' trustees as required or encouraged by governments. Thus, this paper is mainly designed to analyze the legality and legitimacy with respect to economically targeted investments.Keywords:economically targeted investments, pension funds, trust, trustees, beneficiaries, fiduciary obligations, prudence, Employee Retirement Income Security Act of 1974, political pressure