The case against active pension funds: Evidence from the Turkish Private Pension System |
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| Institution: | 1. Koç University, Rumelifeneri Yolu, Sar?yer, 34450 Istanbul, Turkey;2. Ozyegin University, Alemdag, Cekmekoy, 34794 Istanbul, Turkey;1. Department of Management, Economics and Quantitative Methods, University of Bergamo, Via dei Caniana 2, Bergamo 24127, Italy;2. Department of Finance, Faculty of Economics, V?B-TU Ostrava, Sokolská t?. 33, Ostrava 702 00, Czech Republic;1. School of Management, University of Science and Technology of China, Hefei 230026, China;2. International Institute of Finance, School of Management, University of Science and Technology of China, Hefei 230026, China;1. Bayes Business School, City, University of London, London, UK;2. Cork University Business School, University College Cork, Ireland;1. Department of Production Engineering, School of Engineering of São Carlos, University of São Paulo, EESC—USP, Brazil;2. Department of Production Engineering, School of Engineering of São Carlos, University of São Paulo, EESC—USP, Av Trabalhador São-Carlense 400, São Carlos, SP 13566-590, Brazil;3. Department of Economics, University of Colorado at Boulder, Economics Building, Office Econ 105, 256 UCB, Boulder, CO 80309-0256, USA |
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| Abstract: | Using data on private Turkish pension funds we show that most active managers are not able to provide performance beyond what could be achieved by passive indexing. The average fund beats its benchmark by only 26 basis points, before fees. We also observe herding behavior among managers' asset allocation decisions which can potentially explain their lack of overperformance. Our results strongly support the need for low-cost index funds in emerging market countries that are reforming their pension schemes. We further recommend regulatory oversight on the “activeness” of funds and introduction of default plans with more balanced asset allocations. |
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