Forbearance in Institutional Investment Management: Evidence from Survey Data
Goyal, Amit and Tol, Ramon and Wahal, Sunil, Forbearance in Institutional Investment Management: Evidence from Survey Data (27 March 2023). Financial Analysts Journal, 2023, 79(2): 7–20. DOI: 10.1080/0015198X.2023.2176163. Available at SSRN: https://ssrn.com/abstract=4093140 or http://dx.doi.org/10.
22 Pages Posted: 10 May 2022 Last revised: 4 May 2023
Date Written: January 31, 2023
We survey 218 institutional investors from 22 countries representing over $4.1 trillion in AUM to understand the drivers of forbearance in the termination of external asset managers. Although asset managers are fired for a variety of reasons, including taking on too much or too little risk, as well as organizational changes at the investment manager or institutional investor, poor performance is by far the dominant cause. There is surprising tolerance for underperformance and holding periods for investment managers are unexpectedly long. Forbearance is important and we argue that performance evaluation should be multi-faceted akin, to a Bayesian decision-maker who conducts continued due diligence and updates beliefs about returns with process information.
Keywords: Institutional Investors, Investment
JEL Classification: G02, G11, G12, G23
Suggested Citation: Suggested Citation