Firm Boundaries, Incentives and Fund Performance: Evidence from a Private Pension Fund System
31 Pages Posted: 15 Nov 2017 Last revised: 19 Jan 2019
Date Written: January 3, 2019
The private pension fund system in Turkey offers a unique institutional structure where bank holding companies own private pension providers and asset management firms. More often than not, pension providers delegate their operational mandates to the asset management arm of the same bank. This structure exposes the retail investor to a double agency problem and raises questions about conflicts of interest and fiduciary duty. We find that funds set up and managed by the same bank holding company perform worse on a risk-adjusted basis than funds who have more of an arm's length relationship between the pension company and asset management firm. We show that the relative underperformance is not simply a consequence of being affiliated with a bank-holding company; bank-affiliated pension providers and asset managers do just as well, if not better, when they are not operating under the same roof. We provide a rationale for the prevalence of this ‘captive’ institutional structure by showing that these funds attract more flows and charge lower fees.
Keywords: pension funds, fund performance, conflicts of interest, bank affiliation
JEL Classification: G2, G23, G28, G1, G15
Suggested Citation: Suggested Citation