Firm Boundaries, Incentives and Fund Performance: Evidence from a Private Pension Fund System

31 Pages Posted: 15 Nov 2017 Last revised: 19 Jan 2019

See all articles by Umut Gokcen

Umut Gokcen

Koc University - Graduate School of Business

S. Mehmet Ozsoy

Ozyegin University

Atakan Yalcin

Ozyegin University

Date Written: January 3, 2019

Abstract

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

Gokcen, Umut and Ozsoy, S. Mehmet and Yalcin, Atakan, Firm Boundaries, Incentives and Fund Performance: Evidence from a Private Pension Fund System (January 3, 2019). Available at SSRN: https://ssrn.com/abstract=3070152 or http://dx.doi.org/10.2139/ssrn.3070152

Umut Gokcen

Koc University - Graduate School of Business ( email )

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

S. Mehmet Ozsoy

Ozyegin University ( email )

Kusbakisi Cd. No: 2
Altunizade, Uskudar
Istanbul, 34662
Turkey

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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