The Case Against Active Pension Funds: Evidence from the Turkish Private Pension System

30 Pages Posted: 28 Dec 2013 Last revised: 11 Apr 2014

See all articles by Umut Gokcen

Umut Gokcen

Koc University - Graduate School of Business

Atakan Yalcin

Ozyegin University

Date Written: March 14, 2014

Abstract

Using a survivorship and selection bias free database of actively managed private Turkish Pension funds we show that most managers are not able to provide performance above and beyond what could be earned by passive indexing. At its simplest, funds with self-declared benchmarks fail to beat them on average. With respect to a common multi-asset factor model, the fund industry as a whole does not deliver a positive alpha and neither does the average fund. The style analysis of individual funds based on their reported asset allocations reveals that the average manager provides 34 basis points of “selection return” per annum. We also test a naïve trading strategy that invests with the top 10 funds in each year for the subsequent year over the period from 2004 to 2011. We find that this strategy earns about the same return as what one could earn with an equal weighted portfolio of Turkish stocks and government bonds. Taken as a whole, our results strongly support the philosophy of passive investing and highlight the need for low-cost index funds in the Turkish Pension fund system.

Keywords: pension fund performance, style analysis

JEL Classification: G12, G23

Suggested Citation

Gokcen, Umut and Yalcin, Atakan, The Case Against Active Pension Funds: Evidence from the Turkish Private Pension System (March 14, 2014). Available at SSRN: https://ssrn.com/abstract=2372059 or http://dx.doi.org/10.2139/ssrn.2372059

Umut Gokcen

Koc University - Graduate School of Business ( email )

Rumelifeneri Yolu
34450 Sariyer
Istanbul
Turkey
(90-212) 338-1672 (Phone)

Atakan Yalcin (Contact Author)

Ozyegin University ( email )

Nisantepe Mahallesi
Alemdag, Cekmekoy
Istanbul, 34794
Turkey
+90-216-564-9587 (Phone)
+90-216-564-9045 (Fax)

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