How Do Fees Affect Plans’ Ability to Beat Their Benchmarks?

SLP#61

The brief’s key findings are:

  • One way that public pension plans assess their investment performance is to compare returns by asset class to selected benchmarks.
  • Plans pay fees to external asset managers with the expectation that they will exceed the benchmarks.
  • As these fees have come under greater scrutiny, the question is whether higher fees help plans outperform their benchmarks.
  • The analysis, using new data for 2011-2016, found that plans that paid higher fees experienced worse performance relative to their benchmarks.
  • This finding held across all major asset classes, but was particularly pronounced for alternative assets, such as private equity and hedge funds.