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Large pension funds do not invest more effectively than smaller pension funds

Author

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  • Jacob Bikker
  • Jeroen Meringa

Abstract

One of the key missions of pension funds is to maximise returns on pension investments. The five largest pension funds in the Netherlands allocate their assets differently among possible investment products compared to the smaller pension funds. This allocation strategy has positively impacted their net returns over the past decade without significantly increasing their risk exposure. Additionally, they benefit from economies of scale when investing their assets. However, these large pension funds have lost their returns advantage due to less effective interest rate risk hedging strategies. Furthermore, performance fees – paid almost exclusively by the largest funds – negatively impact net returns, except for fees associated with private equity and hedge funds.

Suggested Citation

  • Jacob Bikker & Jeroen Meringa, 2024. "Large pension funds do not invest more effectively than smaller pension funds," Working Papers 822, DNB.
    • Handle: RePEc:dnb:dnbwpp:822
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    File URL: https://www.dnb.nl/media/0ssljik3/working_paper_no-822.pdf
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    References listed on IDEAS

    as
    1. Jacob A. Bikker & Jeroen J. Meringa, 2022. "Have scale effects on cost margins of pension fund investment portfolios disappeared?," Applied Economics, Taylor & Francis Journals, vol. 54(39), pages 4501-4518, August.
    2. Bikker, Jacob A. & De Dreu, Jan, 2009. "Operating costs of pension funds: the impact of scale, governance, and plan design," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(1), pages 63-89, January.
    3. Cai, Jinghan & He, Jia & He, Jibao, 2010. "How better informed are the institutional investors?," Economics Letters, Elsevier, vol. 106(3), pages 234-237, March.
    4. Broeders, Dirk W.G.A. & van Oord, Arco & Rijsbergen, David R., 2019. "Does it pay to pay performance fees? Empirical evidence from Dutch pension funds," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 299-312.
    5. Jacob A. Bikker & Dirk W. G. A. Broeders & David A. Hollanders & Eduard H. M. Ponds, 2012. "Pension Funds’ Asset Allocation and Participant Age: A Test of the Life-Cycle Model," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(3), pages 595-618, September.
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    More about this item

    Keywords

    Pension fund investment returns; scale economies; investment allocation; pension funds size-return relationship; performance fees; consolidation;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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