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

Assaf Hamdani; Eugene Kandel; Yevgeny Mugerman; Yishay Yafeh

doi:10.1561/108.00000015

journal article Jun 06, 2017

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

Assaf Hamdani Eugene Kandel Yevgeny Mugerman Yishay Yafeh

Journal of Law, Finance, and Accounting Vol. 2 No. 1 pp. 49-86 · Emerald

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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.

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Details

Published: Jun 06, 2017
Vol/Issue: 2(1)
Pages: 49-86

Authors

A

Assaf Hamdani

The Hebrew University and ECGI

E

Eugene Kandel

School of Business Administration and the Federmann Center for the Study of Rationality at the Hebrew University, CEPR and ECGI Department of Economics,

Y

Yevgeny Mugerman

School of Business Administration, the Hebrew University, and the College of Management

Y

Yishay Yafeh

the Hebrew University School of Business Administration, , CEPR and ECGI

Cite This Article

Assaf Hamdani, Eugene Kandel, Yevgeny Mugerman, et al. (2017). Incentive Fees and Competition in Pension Funds: Evidence from a Regulatory Experiment. Journal of Law, Finance, and Accounting, 2(1), 49-86. https://doi.org/10.1561/108.00000015

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

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