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Volume 62, Issue 6

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The Role of Fees in Pension Fund Performance. Evidence from Spain

Alda, Mercedes; Ferruz, Luis

Year: 2012   Volume: 62   Issue: 6   Pages: 518-535

Abstract: Pension funds represent a substantial part of welfare systems, so efficient management is important for beneficiaries. However, performance may be seriously affected by fees. This fact led us to analyze the relation between fees and performance in Spanish equity and bond pension funds with a European investment focus. We apply a model that relates performance and fees, employing several performance measures (the alphas from the Fama and French model, the Carhart model, and two models with bond benchmarks) in order to observe if the relation changes depending on the type of pension fund analyzed. The analysis reveals a significantly negative relation for both types of pension funds, so we observe that worse-performance pension funds charge higher fees and better-performance pension funds charge lower fees. Finally, we confirm that after-fee performance is lower than before-fee performance.

JEL classification: G23, G12

Keywords: fees, performance, pension funds

RePEc: http://ideas.repec.org/a/fau/fauart/v62y2012i6p518-535.html

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