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 assets-under-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.
| Original language | English |
|---|---|
| Pages (from-to) | 49-86 |
| Number of pages | 38 |
| Journal | Journal of Law, Finance, and Accounting |
| Volume | 2 |
| Issue number | 1 |
| DOIs | |
| State | Published - 6 Jun 2017 |
| Externally published | Yes |
Bibliographical note
Publisher Copyright:©2017 A. Hamdani, E. Kandel, Y. Mugerman, and Y. Yafeh.
Funding
∗This project was supported by the Israel Science Foundation (Grant No. 890/2013) and by the I-CORE program of the Planning and Budgeting Committee and the Israel Science Foundation (Grant No. 1821/12). Kandel and Yafeh received financial support from the Krueger Center at the Jerusalem School of Business Administration. We thank Doron
| Funders | Funder number |
|---|---|
| Krueger Center | |
| Israel Science Foundation | 890/2013 |
| Israeli Centers for Research Excellence | 1821/12 |