Pension Fund Performance and Costs: Small is Beautiful

46 Pages Posted: 27 Feb 2007 Last revised: 6 Nov 2012

See all articles by Rob Bauer

Rob Bauer

Maastricht University

Martijn Cremers

University of Notre Dame; ECGI

Rik Frehen

Tilburg University - Department of Finance

Date Written: 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.

Keywords: Pension Fund, Performance, Costs, Liquidity

JEL Classification: G23, G11, G14

Suggested Citation

Bauer, Rob and Cremers, K. J. Martijn and Frehen, Rik, Pension Fund Performance and Costs: Small is Beautiful (April 30, 2010). Available at SSRN: or

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

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Rik Frehen (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE

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