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Pension Fund Performance and Costs: Small is Beautiful

Rob Bauer

Maastricht University

Martijn Cremers

University of Notre Dame

Rik Frehen

Tilburg University - Department of Finance

April 30, 2010

Using the CEM pension fund data set, we document the cost structure and performance of a large sample of US pension funds. To date, self-reporting biases and a deficiency of comprehensive return and cost data have severely hindered pension fund performance studies. The bias-free CEM dataset resolves these issues and provides detailed information on fund-specific returns, benchmarks and costs for all types of pension plans and equity mandates. We find that pension fund cost levels are substantially lower than mutual fund fees. The domestic equity investments of US pension funds tend to generate abnormal returns (after expenses and trading costs) close to zero or slightly positive, contrasting the average underperformance of mutual funds. However, small cap mandates of defined benefit funds have outperformed their benchmarks by about 3% a year. While larger scale brings costs advantages, liquidity limitations seem to allow only smaller funds, and especially small cap mandates, to outperform their benchmarks.

Number of Pages in PDF File: 46

Keywords: Pension Fund, Performance, Costs, Liquidity

JEL Classification: G23, G11, G14

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Date posted: February 27, 2007 ; Last revised: November 6, 2012

Suggested Citation

Bauer, Rob and Cremers, Martijn and Frehen, Rik, Pension Fund Performance and Costs: Small is Beautiful (April 30, 2010). Available at SSRN: https://ssrn.com/abstract=965388 or http://dx.doi.org/10.2139/ssrn.965388

Contact Information

Rob Bauer
Maastricht University ( email )
P.O. Box 616
Maastricht, 6200 MD
+31 43 3883871 (Phone)
K. J. Martijn Cremers
University of Notre Dame ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
Rik G. P. Frehen (Contact Author)
Tilburg University - Department of Finance ( email )
P.O. Box 90153
Tilburg, DC 5000 LE
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References:  36
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