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Evaluating the Financial Performance of Pension Funds: An Individual Investor’s Perspective

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  • Paul J.M. Klumpes
  • Michael McCrae

Abstract

Pension funds require the managerial expertise of financial intermediaries, who must be paid a fee or spread. The spread significantly reduces the value of the pension fund over longer holding periods, and implies significantly greater incentive conflicts for defined contribution‐funded pension funds than for defined benefit‐funded pension funds. The magnitude of the intermediary spread and those factors affecting the demand for financial intermediary reputation and the marginal fee for this reputation are examined for a sample of 66 defined contribution and 54 defined benefit Australian pension funds during 1991–93. The intermediary spread significantly reduces the average net return provided to individual investors, particularly for defined contribution pension funds. Agency‐related factors affecting the demand for financial intermediary reputation and its marginal fee reflect underlying contract‐based differences between these types of fund.

Suggested Citation

  • Paul J.M. Klumpes & Michael McCrae, 1999. "Evaluating the Financial Performance of Pension Funds: An Individual Investor’s Perspective," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(3‐4), pages 261-281, April.
    • Handle: RePEc:bla:jbfnac:v:26:y:1999:i:3-4:p:261-281
    DOI: 10.1111/1468-5957.00256
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    Cited by:

    1. Paul Klumpes, 2000. "Incentives and disincentives for voluntary disclosure by pension funds: international evidence," Accounting and Business Research, Taylor & Francis Journals, vol. 30(4), pages 287-298.
    2. Milos Kopa & Kristina Sutiene & Audrius Kabasinskas & Ausrine Lakstutiene & Aidas Malakauskas, 2022. "Dominance Tracking Index for Measuring Pension Fund Performance with Respect to the Benchmark," Sustainability, MDPI, vol. 14(15), pages 1-28, August.
    3. Adam Clements & Michael E. Drew, 2007. "Institutional Homogeneity and Choice in Superannuation," School of Economics and Finance Discussion Papers and Working Papers Series 218, School of Economics and Finance, Queensland University of Technology.
    4. Mercedes Alda & Luis Ferruz, 2012. "The Role of Fees in Pension Fund Performance. Evidence from Spain," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(6), pages 518-535, December.
    5. Paul Cox & Stephen Brammer & Andrew Millington, 2007. "Pension Fund Manager Tournaments and Attitudes Towards Corporate Characteristics," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(7‐8), pages 1307-1326, September.

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