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Does it pay to pay performance fees? Empirical evidence from Dutch pension funds

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  • Broeders, Dirk W.G.A.
  • van Oord, Arco
  • Rijsbergen, David R.

Abstract

We analyze the relation between investment returns and performance fees for 218 Dutch occupational pension funds with an average total of 1090 billion euro in assets under management from 2012 to 2017. Our dataset is free from self-reporting biases and includes total return, excess return and performance fees for six major asset classes. We find no statistical evidence that the returns of pension funds that pay performance fees to asset managers for active investing are significantly higher or lower than the returns of pension funds that do not pay performance fees. This is true for most asset classes and robust if we correct for risk. We also document that large and more specialized pension funds pay less performance fees for a given level of excess return in alternative asset classes such as hedge funds and private equity. This is possibly the result of better negotiation power due to their larger scale or higher level of expertise.

Suggested Citation

  • Broeders, Dirk W.G.A. & van Oord, Arco & Rijsbergen, David R., 2019. "Does it pay to pay performance fees? Empirical evidence from Dutch pension funds," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 299-312.
    • Handle: RePEc:eee:jimfin:v:93:y:2019:i:c:p:299-312
    DOI: 10.1016/j.jimonfin.2019.02.010
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    More about this item

    Keywords

    Pension funds; Asset management; Performance fees; Investment costs;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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