Concerned with excessive risk taking, regulators worldwide generally prohibit private
pension funds from charging performance-based fees. Instead, the premise underlying the regulation of private pension schemes (and other retail-oriented funds) is that competition among fund managers should provide them with the incentives to make investment decisions that would serve their clients?
long-term interests. Using a regulatory experiment from Israel, we compare the effects of incentive fees and competition on the performance of retirement savings schemes. Taking advantage of a unique institutional setup, we compare three exogenously-given types of long-term savings schemes operated by the same management companies: (i) funds with performance-based fees, facing no competition; (ii) funds with AUM-based fees, facing low competitive pressure; and (iii) funds with AUM-based fees, operating in a highly competitive environment. We find that funds with performance-based fees exhibit somewhat higher risk (depending on the measure used) but significantly higher risk-adjusted returns. By contrast, we find no evidence that competitive pressure leads to improved performance. We conclude that incentives and competition are not perfect substitutes in the retirement savings industry. Our analysis also suggests that the pervasive regulatory restrictions on the use of performance-based fees in pension fund management may be costly for savers in the long-run and should be reconsidered.
This study provides an economic analysis of the determinants and consequences of corporate social responsibility (CSR) and sustainability reporting. To frame our analysis, we consider a widespread mandatory adoption of CSR reporting standards in...Read more
Index funds and indexed ETFs managed by the “Big Three” – BlackRock, Vanguard and State Street – have grown to be the largest investors in the capital markets and have become the presumptive “deciders” of corporate law controversies. With this...Read more
How special is Centros? This contribution places Centros in internal market law. It starts by
turning the judgment on its head and imagines an alternative Centros: the judgment that the
Danish authorities...Read more
This paper analyzes the conduct of mutual funds in shareholder litigation. We begin by reviewing the basic forms of shareholder litigation and the benefits such claims might offer mutual fund investors. We then investigate, though an in-...Read more