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Asset Managers: Institutional Performance and Smart Betas

63 Pages Posted: 17 Feb 2016 Last revised: 2 Dec 2016

Joseph J. Gerakos

Tuck School of Business at Dartmouth College

Juhani T. Linnainmaa

USC Marshall School of Business; National Bureau of Economic Research (NBER)

Adair Morse

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

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Date Written: November 30, 2016

Abstract

Using a dataset of $17 trillion of assets under management, we document that actively-managed institutional accounts outperformed strategy benchmarks by 86 (42) basis points gross (net) during 2000--2012. In return, asset managers collected $162 billion in fees per year for managing 29% of worldwide capital. Estimates from a Sharpe (1992) model imply that their outperformance comes from factor exposures (''smart beta"). If institutions had instead implemented mean-variance portfolios of institutional mutual funds, they would not have earned higher Sharpe ratios. Recent growth of the ETF market implies that asset managers are losing advantages held during our sample period.

Suggested Citation

Gerakos, Joseph J. and Linnainmaa, Juhani T. and Morse, Adair, Asset Managers: Institutional Performance and Smart Betas (November 30, 2016). Chicago Booth Research Paper No. 16-02. Available at SSRN: https://ssrn.com/abstract=2733147 or http://dx.doi.org/10.2139/ssrn.2733147

Joseph J. Gerakos (Contact Author)

Tuck School of Business at Dartmouth College ( email )

Hanover, NH 03755
United States

Juhani T. Linnainmaa

USC Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Adair Morse

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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