Why Do Investors Favor Active Management … To the Extent They Do?

12 Pages Posted: 26 Sep 2013

See all articles by Ron Bird

Ron Bird

University of Technology Sydney (UTS)

Jack Gray

University of Technology Sydney (UTS)

Massimo Scotti

University of Technology Sydney

Date Written: September 24, 2013

Abstract

Half a century of analysis has yet to fully answer why investors place such a large proportion of their funds with active equity managers, given the discouraging evidence on the latter’s ability to add net value. From the voluminous literature on manager performance we conclude that there is some, but limited, evidence that can rationally justify hiring active managers. The weakness of the evidence leads us to ask, Why do investors favor active equity management to the extent they do? To help answer this question, we conducted two online surveys, one of Chief Investment Officers of predominantly large Australian superannuation (i.e., pension) funds and another of asset consultants. The results confirmed that the industry is captive to a pervasive prior towards active management. The prior is reinforced by a competitive environment and supported by a complex mix of behavioral, agency, organizational, and cultural factors.

Keywords: Active Management, Agency Costs, Behavioral Finance, Pension Fund, Retirement Savings

Suggested Citation

Bird, Ron and Gray, Jack and Scotti, Massimo, Why Do Investors Favor Active Management … To the Extent They Do? (September 24, 2013). Rotman International Journal of Pension Management, Vol. 6, No. 2, 2013. Available at SSRN: https://ssrn.com/abstract=2330352 or http://dx.doi.org/10.2139/ssrn.2330352

Ron Bird

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
Ultimo, New South Wales 5000
Australia

Jack Gray (Contact Author)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Massimo Scotti

University of Technology Sydney ( email )

15 Broadway, Ultimo
Sydney
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
324
rank
91,136
Abstract Views
1,345
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information