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The Determinants and Opportunity Costs of External Management Fees for State‐Administered Pension Plans

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  • Jeffrey Diebold
  • Jerrell D. Coggburn

Abstract

Private investment firms receive billions of dollars in fees to actively manage the assets held within state pension funds. We examine the determinants of the fees paid and find that more financially burdensome plans tend to pay more. The magnitude of this relationship declines as the size of the plan increases, suggesting economies of scale. These fees do not appear to be associated with higher pension fund returns. Finally, we calculate the opportunity costs of fees and estimate that most pension funds would be better financially positioned today if they had, instead, passively invested the fees in broad‐based market indices.

Suggested Citation

  • Jeffrey Diebold & Jerrell D. Coggburn, 2018. "The Determinants and Opportunity Costs of External Management Fees for State‐Administered Pension Plans," Public Budgeting & Finance, Wiley Blackwell, vol. 38(4), pages 3-31, December.
    • Handle: RePEc:bla:pbudge:v:38:y:2018:i:4:p:3-31
    DOI: 10.1111/pbaf.12207
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    Cited by:

    1. Lučivjanská, Katarína & Lyócsa, Štefan & Radvanský, Marek & Širaňová, Mária, 2022. "Return adjusted charge ratios: What drives fees and costs of pension schemes?," Finance Research Letters, Elsevier, vol. 48(C).

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