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The Role of Fees in Pension Fund Performance. Evidence from Spain

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Abstract

Pension funds represent a substantial part of welfare systems, so efficient management is important for beneficiaries. However, performance may be seriously affected by fees. This fact led us to analyze the relation between fees and performance in Spanish equity and bond pension funds with a European investment focus. We apply a model that relates performance and fees, employing several performance measures (the alphas from the Fama and French model, the Carhart model, and two models with bond benchmarks) in order to observe if the relation changes depending on the type of pension fund analyzed. The analysis reveals a significantly negative relation for both types of pension funds, so we observe that worse-performance pension funds charge higher fees and better-performance pension funds charge lower fees. Finally, we confirm that after-fee performance is lower than before-fee performance.

Suggested Citation

  • Mercedes Alda & Luis Ferruz, 2012. "The Role of Fees in Pension Fund Performance. Evidence from Spain," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(6), pages 518-535, December.
  • Handle: RePEc:fau:fauart:v:62:y:2012:i:6:p:518-535
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    More about this item

    Keywords

    fees; performance; pension funds;

    JEL classification:

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

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