Performance Capital Flows in DC Pensions

Bryan Gutierrez, Victoria Ivashina and Juliana Salomao

No 19286, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Are defined contribution (DC) pension funds' capital flows sensitive to performance? We examine pressures from individual account holders who can switch their pension managers. Using novel data on retirement accounts for nearly 10 million individuals, we analyze switching behavior based on the plan’s risk profile. Switching across managers within the same pension product is not uncommon, and the tendency to change managers rises over time. Capital flows are sensitive to and increase with fund performance. This sensitivity creates pressure on managers, shaping their incentives and portfolio decisions. A quasi-exogenous increase in outflows leads managers to shift toward higher-yielding bond holdings.

Keywords: Pension funds; Reach-for-yield (search for similar items in EconPapers)
JEL-codes: D14 G2 J32 (search for similar items in EconPapers)
Date: 2024-07
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