Hostname: page-component-8448b6f56d-jr42d Total loading time: 0 Render date: 2024-04-23T19:41:30.149Z Has data issue: false hasContentIssue false
  • English
  • Français

Investment performance, regulation and incentives: the case of Chilean pension funds

Published online by Cambridge University Press:  06 January 2020

Fernando López Open the ORCID record for Fernando López [Opens in a new window]  and
Eduardo Walker
Fernando López*
Affiliation:
Facultad de Economía y Negocios, Universidad Alberto Hurtado, Erasmo Escala 1835, Santiago, Chile
Eduardo Walker
Affiliation:
School of Management, Pontificia Universidad Católica de Chile, Vicuña Mackenna 4860, Santiago, Chile
*
*Corresponding author. Email: felopez@uahurtado.cl
Get access Rights & Permissions [Opens in a new window]

Abstract

We examine the investment performance of Chilean pension funds during their multi-fund period (2003–17). Using tradable asset class benchmarks, we extend Sharpe's (1992) return-based style analysis by explicitly considering regulatory restrictions and currency hedging. We find that despite the significant differences between pension fund manager returns, they are statistically similar to our style benchmarks for all fund types. Furthermore, accounting for currency hedging improves the accuracy of the replicating portfolios and the selection return estimates. Our results have policy implications for investment regulation of pension systems with similar characteristics to the Chilean one.

Keywords

Asset allocationmulti-fundpension fundsperformance evaluationstyle analysisG11G23C61C63
Type
Article
Information
Journal of Pension Economics & Finance , Volume 20 , Issue 1 , January 2021 , pp. 125 - 150
Copyright
Copyright © Cambridge University Press 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Admati, AR and Pfleiderer, P (1997) Does it all add up? Benchmarks and the compensation of active portfolio managers. The Journal of Business 70, 323–350.CrossRefGoogle Scholar
Andonov, A, Bauer, R and Cremers, M (2012) Can large pension funds beat the market? Asset allocation, market timing, security selection, and the limits of liquidity. Working Paper.CrossRefGoogle Scholar
Berk, JB and van Binsbergen, J (2015) Measuring skill in the mutual fund industry. Journal of Financial Economics 118, 1–20.CrossRefGoogle Scholar
Blake, D (2013). Decentralized investment management: evidence from the pension fund industry. The Journal of Finance 68, 1133–1178.CrossRefGoogle Scholar
Blake, D, Lehmann, B and Timmermann, A (1999) Asset allocation dynamics and pension fund performance. The Journal of Business 72, 429–461.CrossRefGoogle Scholar
Blake, D, Sarno, L and Zinna, G (2017) The market for lemmings: the herding behavior of pension funds. Journal of Financial Markets 36, 17–39.Google Scholar
Busse, JA, Goyal, A and Wahal, S (2010) Performance and persistence in institutional investment management. The Journal of Finance 65, 765–790.CrossRefGoogle Scholar
Busse, J, Goyal, A and Wahal, S (2014) Investing in a global world. Review of Finance 18, 561–590.CrossRefGoogle Scholar
Campbell, JY and Viceira, LM (2001) Who should buy long-term bonds? American Economic Review 91, 99–127.CrossRefGoogle Scholar
Campbell, JY and Viceira, LM (2002) Strategic asset allocation: Portfolio choice for long-term investors. Clarendon Lectures in Economic.CrossRefGoogle Scholar
Campbell, JY, Serfaty-De Medeiros, K and Viceira, LM (2010) Global currency hedging. The Journal of Finance 65, 87–121.CrossRefGoogle Scholar
Colon, J (2016) Foreign investors in U.S. mutual funds: the trouble with treaties. Virginia Tax Review 35, 483–552.Google Scholar
Cremers, MKJ and Petajisto, A (2009) How active is your fund manager? A new measure that predicts performance. The Review of Financial Studies 22, 3329–3365.Google Scholar
Daniel, K and Moskowitz, TJ (2016) Momentum crashes. Journal of Financial Economics 122, 221–247.CrossRefGoogle Scholar
Dyck, A, Lins, KV and Pomorski, L (2013) Does active management pay? New international evidence. Review of Asset Pricing Studies 3, 200–228.CrossRefGoogle Scholar
Fama, E and French, K (2017) International tests of a five-factor asset pricing model. Journal of Financial Economics 123, 441–463.CrossRefGoogle Scholar
Fernandez, V (2014) Profitability of Chile's defined-contribution-based pension system during the multifund era. Emerging Markets Finance and Trade 49, 4–25.CrossRefGoogle Scholar
Ferson, WE (2010) Investment performance evaluation. Annual Review of Financial Economics 2, 207–234.CrossRefGoogle Scholar
Gallagher, DR, Harman, G, Schmidt, CH and Warren, GJ (2017) Global equity fund performance: an attribution approach. Financial Analyst Journal 73, 56–71.CrossRefGoogle Scholar
Gerakos, J, Linnainmaa, JT and Morse, A (2017) Asset manager funds. Working Paper, University of Chicago and University of California Berkeley.CrossRefGoogle Scholar
Goyal, A and Wahal, S (2008) The selection and termination of investment management firms by plan sponsors. The Journal of Finance 63, 1805–1847.CrossRefGoogle Scholar
Graham, JR (1999) Herding among investment newsletters: theory and evidence. Journal of Finance 54, 237–268.CrossRefGoogle Scholar
Jorion, P (2003) Portfolio optimization with tracking-error constraints. Financial Analysts Journal 59, 70–82.CrossRefGoogle Scholar
Khorana, A, Servaes, H and Tufano, P (2008) Mutual fund fees around the world. The Review of Financial Studies 22, 1279–1310.CrossRefGoogle Scholar
Lakonishok, J, Shleifer, A and Vishny, RW (1992) The impact of institutional trading on stock prices. Journal of Financial Economics 32, 23–43.CrossRefGoogle Scholar
Leibowitz, ML (1987) Pension asset allocation through surplus management. Financial Analysts Journal 43, 29–40.CrossRefGoogle Scholar
Lewellen, J (2011) Institutional investors and the limits of arbitrage. Journal of Financial Economics 102, 62–80.CrossRefGoogle Scholar
Lo, AW and MacKinlay, AC (1988) Stock market prices do not follow random walks: evidence from a simple specification test. The Review of Financial Studies 1, 41–66.CrossRefGoogle Scholar
Nofsinger, J and Sias, RW (1999) Herding and feedback trading by institutional and individual investors. Journal of Finance 54, 2263–2295.CrossRefGoogle Scholar
OECD (2018) Survey of Investment Regulation of Pension Funds. Paris: OECD.Google Scholar
Olivares, JA (2008) Rear-view-mirror driving in defined contribution systems: the strange formula of the Chilean pension funds. Applied Economics 40, 2009–2019.CrossRefGoogle Scholar
Pedersen, LH (2018) Sharpening the arithmetic of active management. Financial Analysts Journal 74, 21–36.CrossRefGoogle Scholar
Raddatz, C and Schmukler, SL (2013) Deconstructing herding: evidence from pension fund investment behavior. Journal of Financial Services Research 43, 99–126.CrossRefGoogle Scholar
Roll, R (1992) A mean/variance analysis of tracking error. Journal of Portfolio Management 18, 13–22.CrossRefGoogle Scholar
Sharpe, WF (1992) Asset allocation: management style and performance measurement. Journal of Portfolio Management 18, 7–19.CrossRefGoogle Scholar
Sharpe, WF and Tint, LG (1990) Liabilities – a new approach. Journal of Portfolio Management 16, 5–10.CrossRefGoogle Scholar
Sias, RW (2004) Institutional herding. Review of Financial Studies 17, 165–206.CrossRefGoogle Scholar
Sichert, T and Meyer-Cirkel, A (2016) Calculating the Global Market Portfolio. Working Paper-SAALT.Google Scholar
Viceira, LM and Wang, ZK (2018) Global portfolio diversification for long-horizon investors. Working paper National Bureau of Economic Research, Volume No. 24646.CrossRefGoogle Scholar
Villatoro, F (2009) The delegated portfolio management problem: reputation and herding. Journal of Banking & Finance 33, 2062–2069.CrossRefGoogle Scholar
Walker, E (1993a) Desempeño financiero de las carteras accionarias en Chile ¿Ha tenido desventajas ser grandes? Cuadernos de Economía 89, 35–75.Google Scholar
Walker, E (1993b) Desempeño financiero de las carteras de ‘Renta Fija’ de los fondos de pensiones. Cuadernos de Economía 89, 1–33.Google Scholar
Walker, E (2008a) Assessing alternative institutional designs for investment regulation in defined contribution pension funds. Abante 11, 121–152.Google Scholar
Walker, E (2008b) Strategic currency hedging and global portfolio investments upside down. Journal of Business Research 61, 657–668.CrossRefGoogle Scholar
Walker, E and Iglesias, A (2010) Financial performance of pension funds: an exploratory study. In Hinz, R, Rudolph, H, Antolin, P and Yermo, J (eds), Chapter 3 in Evaluating the Financial Performance of Pension Funds. Washington, Wahington DC: The World Bank, pp. 39–94.Google Scholar