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Pension Fund Performance and Costs: Small is Beautiful

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  • Bauer, R.M.M.J.
  • Cremers, K.J.M.
  • Frehen, R.G.P.

Abstract

Using the CEM pension fund data set, we document the cost structure and performance of a large sample of US pension funds. To date, self-reporting biases and a deficiency of comprehensive return and cost data have severely hindered pension fund performance studies. The bias-free CEM dataset resolves these issues and provides detailed information on fund-specific returns, benchmarks and costs for all types of pension plans and equity mandates. We find that pension fund cost levels are substantially lower than mutual fund fees. The domestic equity investments of US pension funds tend to generate abnormal returns (after expenses and trading costs) close to zero or slightly positive, contrasting the average underperformance of mutual funds. However, small cap mandates of defined benefit funds have outperformed their benchmarks by about 3% a year. While larger scale brings costs advantages, liquidity limitations seem to allow only smaller funds, and especially small cap mandates, to outperform their benchmarks.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23556.

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Date of creation: 29 Apr 2010
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Handle: RePEc:pra:mprapa:23556

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Keywords: Pension fund performance; US pension funds;

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References

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Cited by:
  1. V. Bouvatier & S. Rigot, 2013. "Pension funds' allocations to hedge funds: an empirical analysis of US and Canadian defined benefit plans," Applied Economics, Taylor & Francis Journals, vol. 45(26), pages 3701-3710, September.
  2. Jacob Bikker, 2013. "Is there an optimal pension fund size? A scale-economy analysis of administrative and investment costs," DNB Working Papers 376, Netherlands Central Bank, Research Department.
  3. Lang, Gunnar & Shen, Yu & Xu, Xian, 2014. "Chinese pension fund investment efficiency: Evidence from CNCSSF stock holdings," ZEW Discussion Papers 14-007, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Aglietta, Michel & Brière, Marie & Rigot, Sandra & Signori, Ombretta, 2012. "Rehabilitating the role of active management for pension funds," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2565-2574.
  5. Helen Higgs & Andrew C. Worthington, 2010. "Economies of Scale and Scope in Australian Superannuation Funds," Discussion Papers in Finance finance:201015, Griffith University, Department of Accounting, Finance and Economics.

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