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Decentralized Investment Management: Evidence from the Pension Fund Industry
Author(s) -
BLAKE DAVID,
ROSSI ALBERTO G.,
TIMMERMANN ALLAN,
TONKS IAN,
WERMERS RUSS
Publication year - 2013
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12024
Subject(s) - diseconomies of scale , investment management , pension , business , management fee , finance , asset management , scale (ratio) , set (abstract data type) , investment (military) , manager of managers fund , asset allocation , target date fund , pension fund , capital (architecture) , asset (computer security) , actuarial science , economies of scale , institutional investor , open end fund , marketing , portfolio , corporate governance , computer science , law , quantum mechanics , political science , programming language , physics , politics , market liquidity , computer security , history , archaeology
ABSTRACT Using a unique data set, we document two secular trends in the shift from centralized to decentralized pension fund management over the past few decades. First, across asset classes, sponsors replace generalist balanced managers with better‐performing specialists. Second, within asset classes, funds replace single managers with multiple competing managers following diverse strategies to reduce scale diseconomies as funds grow larger relative to capital markets. Consistent with a model of decentralized management, sponsors implement risk controls that trade off higher anticipated alphas of multiple specialists against the increased difficulty in coordinating their risk‐taking and the greater uncertainty concerning their true skills.