Download This PaperIncentive Fees and Competition in Pension Funds: Evidence from a Regulatory Experiment
38 Pages Posted: 22 Sep 2015 Last revised: 30 Sep 2017
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Incentive Fees and Competition in Pension Funds: Evidence from a Regulatory Experiment
Incentive Fees and Competition in Pension Funds: Evidence from a Regulatory Experiment in Israel
Date Written: November 7, 2016
Abstract
Concerned with excessive risk-taking, regulators worldwide generally prohibit performance-based fees in pension funds. Presumably, competition can substitute for incentive pay in providing incentives for fund managers to serve their clients’ interests. Using a regulatory experiment from Israel, we compare the performance of three exogenously-given long-term savings schemes: Funds with performance-based fees, facing no competition; funds with assets-under-management (AUM)-based fees and virtually no competition; and funds with AUM-based fees, operating in a competitive environment. Funds with performance-based fees exhibit the highest risk-adjusted returns without assuming more risk. Competitive pressure is not associated with similar outcomes, suggesting that incentives and competition are not substitutes in the retirement savings industry.
Keywords: Institutional Investors, Pension Funds, Incentive Fees, Defined Contribution
JEL Classification: G23, G20, G11
Suggested Citation: Suggested Citation
European Corporate Governance Institute (ECGI) ( email )
c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium
European Corporate Governance Institute (ECGI)
c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium
HOME PAGE: http://www.ecgi.org