The Selection and Termination of Investment Managers by Plan Sponsors

Posted: 2 Mar 2005

See all articles by Amit Goyal

Amit Goyal

University of Lausanne; Swiss Finance Institute

Sunil Wahal

Arizona State University (ASU) - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: November 2004


We examine the selection and termination of investment managers by plan sponsors, representing public and corporate pension plans, unions, foundations, and endowments. We build a unique dataset that comprises hiring and firing decisions by approximately 3,700 plan sponsors over a 10-year period from 1994 to 2003. Our data represent the allocation of over $730 billion in mandates to hired investment managers and the withdrawal of $110 billion from fired investment managers. We find that plan sponsors hire investment managers after these managers earn large positive excess returns up to three years prior to hiring. However, despite general persistence in investment manager returns, this return chasing behavior does not deliver positive excess returns thereafter; post-hiring excess returns are indistinguishable from zero. Plan sponsors terminate investment managers after underperformance but the excess returns of these managers after being fired are frequently positive. Finally, using a matched sample of firing and hiring decisions, we find that if plan sponsors had stayed with fired investment managers, their excess returns would be larger than those actually delivered by newly hired managers.

Keywords: Pensions, Asset Management, Plan Sponsors

JEL Classification: G23, G12

Suggested Citation

Goyal, Amit and Wahal, Sunil, The Selection and Termination of Investment Managers by Plan Sponsors (November 2004). Available at SSRN:

Amit Goyal

University of Lausanne ( email )

Batiment Extranef 226
Lausanne, Vaud CH-1015
+41 21 692 3676 (Phone)
+41 21 692 3435 (Fax)


Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Sunil Wahal (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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