The Determinants and Opportunity Costs of External Management Fees for State‐Administered Pension Plans

29 Pages Posted: 4 Dec 2018

See all articles by Jeffrey Diebold

Jeffrey Diebold

North Carolina State University, College of Humanities and Social Sciences, Department of Political Science & Public Administration, Students

Jerrell Coggburn

North Carolina State University

Date Written: Winter 2018

Abstract

Private investment firms receive billions of dollars in fees to actively manage the assets held within state pension funds. We examine the determinants of the fees paid and find that more financially burdensome plans tend to pay more. The magnitude of this relationship declines as the size of the plan increases, suggesting economies of scale. These fees do not appear to be associated with higher pension fund returns. Finally, we calculate the opportunity costs of fees and estimate that most pension funds would be better financially positioned today if they had, instead, passively invested the fees in broad‐based market indices.

Suggested Citation

Diebold, Jeffrey and Coggburn, Jerrell, The Determinants and Opportunity Costs of External Management Fees for State‐Administered Pension Plans (Winter 2018). Public Budgeting & Finance, Vol. 38, Issue 4, pp. 3-31, 2018, Available at SSRN: https://ssrn.com/abstract=3295224 or http://dx.doi.org/10.1111/pbaf.12207

Jeffrey Diebold (Contact Author)

North Carolina State University, College of Humanities and Social Sciences, Department of Political Science & Public Administration, Students ( email )

NC
United States

Jerrell Coggburn

North Carolina State University ( email )

Campus Box 8102
Raleigh, NC 27695
United States

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