Decentralized investment management: An analysis of non-profit pension funds
We investigate delegated investment management in private pension accounts using datafrom Australian accumulation (superannuation) funds. In Australian non-profit pensionfunds, trustees choose investment managers on behalf of members. We find that funds withmany delegated managers have higher risk-adjusted returns than those with few. Howeverfunds with 13 or less specialized managers show no improvement over funds with a singlediversified manager. All do worse than a benchmark portfolio of asset-class indices. Further,by using random selection to mimic the choices of an uninformed individual choosing fromthe same menu of delegate managers as used by trustees, we show that returns from pensionfunds with large numbers of trustee-selected managers compare favorably with returnsfrom randomly selected, equally weighted portfolios. However this improvement falls offquickly for funds with fewer trustee-selected managers, or when randomly selected portfoliosare also diversified across asset classes. Results indicate that an uninformed individualfollowing a naive diversification strategy would have done as well as most trustee boards in thissample.
Year of publication: |
2007
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Authors: | Bateman Hazel ; Thorp Susan |
Publisher: |
Cambridge University Press |
Saved in:
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