After the long and the intensive political debates, the Hungarian government launched so-called 'the three-pillar pension system' in 1998. One of the key elements of the 1998 reform was to create the Mandatory Private Pension Funds (MPFs) as the second pillar of the new system. The aim of this paper is to examine the institutional framework and performance of MPFs, taking into consideration the fact that the decision making process before 1998 and the following political maneuvers had a great impact on management activities and economic efficiencies of the pension funds. As a conclusion of the paper, we maintain that in order to mitigate negative influence from political strife and maximize the interests of the fund members, certain governance reforms and reinforcement of the monitoring system against MPFs should be enacted for successful transformation of the Hungarian pension system.