Scott Stewart, Boston University ( with Jeffrey Heisler, Christopher R. Knittel, John J. Neumann)
Abstract:
Prior studies have examined the institutional asset management industry and documented the performance factors and product attributes which play roles in plan sponsors’ decisions to place institutional plan assets with investment products or managers. The analyses in this paper document that plan sponsors may not be acting in their stakeholders’ best interests when they make these rebalancing or re-allocation decisions. Portfolios of products to which money is moved subsequently under-perform products from which it is withdrawn. In allocation decisions among equity, fixed income, and balanced investment products, most of that inferior performance is attributed to their selections of specific products or managers. In allocation decisions focusing exclusively on the equity asset class, under-performance is shown to be due to a mix of poor style or category re-allocations as well as product selections.
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Why Do Institutional Plan Sponsors Hire and Fire Their Investment Managers?
Scott Stewart (with Jeffrey Heisler, Christopher R. Knittel, John J. Neumann), Journal of Business and Economic Studies 13 (1) (Spring 2007): 88-115
Abstract:
This study draws inferences about investment decisions by plan sponsors who oversee over $6 trillion in institutional investment assets by examining asset and account flows for actively-managed U.S. equity products. Analysis reveals an expected role for benchmarks – primarily the S&P500 – and a curious role for total returns over short and long-term horizons in asset flow allocations. Sponsors punish for one-year losses, and screen on consistency, but not magnitude, of positive or negative active return over time. Style benchmarks are more prominent in decisions to move accounts, which are found to involve more criteria, possibly reflecting a higher hurdle decision requirement.
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