Journal of Finance Vol. 68 No. 3 2013

Decentralized Investment Management: Evidence from the Pension Fund Industry

David Blake¹; Alberto G. Rossi²; Allan Timmermann³; Ian Tonks⁴; Russ Wermers^5,2

¹ City, University of London · ² University of Maryland, College Park · ³ Centre for Economic Policy Research · ⁴ School of Accounting and Finance · ⁵ Department for Work and Pensions

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.

DOI

10.1111/jofi.12024

Volume

68

Issue

3

Pages

1133-1178

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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