Incentive Fees and Competition in Pension Funds: Evidence from a Regulatory Experiment

Assaf Hamdani, Eugene Kandel, Yevgeny Mugerman and Yishay Yafeh

Journal of Law, Finance, and Accounting, 2017, vol. 2, issue 1, 49-86

Abstract: Concerned with excessive risk-taking, regulators worldwide generally prohibit performance-based fees in pension funds. Presumably, competition can substitute for incentive pay in providing incentives for fund managers to serve their clients’ interests. Using a regulatory experiment from Israel, we compare the performance of three exogenously-given long-term savings schemes: Funds with performance-based fees, facing no competition; funds with assetsunder- management (AUM)-based fees and virtually no competition; and funds with AUM-based fees, operating in a competitive environment. Funds with performance-based fees exhibit the highest risk-adjusted returns without assuming more risk. Competitive pressure is not associated with similar outcomes, suggesting that incentives and competition are not substitutes in the retirement savings industry.

Keywords: Institutional Investors; Pension Funds; Incentive Fees; Defined Contribution (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (10)

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Working Paper: Incentive Fees and Competition in Pension Funds: Evidence from a Regulatory Experiment (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:now:jnllfa:108.00000015

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