Performance Clustering and Incentives in the UK Pension Fund Industry

  • David Blake
  • Bruce N. Lehmann
  • Allan Timmermann


Despite the vast growth and increased economic importance of the fund-management industry, few studies have considered the effect of incentives and fee structures on fund behaviour. Further, those studies that have been produced have almost exclusively focused on the investment behaviour of US mutual funds, predominantly those invested in US equities.1 Investment performance by institutions outside the US has been much less intensively researched. This omission is important, since differences in institutional and legal frameworks and, indeed, different investment cultures and fund manager compensation schemes might help to shed additional light on the incentive effects operating in this industry.


Mutual Fund Pension Fund Excess Return Performance Cluster Asset Class 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Admati, A., Bhattacharya, S., Pfleiderer, P. C. and Ross, S. A. (1986) ‘On Timing and Selectivity’, Journal of Finance, 41, 715–30.CrossRefGoogle Scholar
  2. Blake, D. (1995) Pension Schemes and Pensions Funds in the United Kingdom, Oxford University Press, Oxford (second edition, 2003).Google Scholar
  3. Blake, D., Lehmann, B. and Timmermann, A. (1999) ‘Asset Allocation Dynamics and Pension Fund Performance’, Journal of Business, 72, 429–61.CrossRefGoogle Scholar
  4. Brown, G., Draper, P. and McKenzie, E. (1997) ‘Consistency of UK Pension Fund Investment Performance’, Journal of Business Finance and Accounting, 24, 155–78.CrossRefGoogle Scholar
  5. Brown, K. C., Harlow, W. V. and Starks, L. T. (1996) ‘Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry’, Journal of Finance, 51, 85–110.CrossRefGoogle Scholar
  6. Brown, S. J. and Goetzmann, W. (1995) ‘Performance Persistence’, Journal of Finance, 50, 679–98.CrossRefGoogle Scholar
  7. Brown, S. J., Goetzmann, W. N., Ibbotson, R. and Ross, S. (1992) ‘Survivorship Bias in Performance Studies’, Review of Financial Studies, 5, 553–80.CrossRefGoogle Scholar
  8. Busse, J. (2001) ‘Another Look at Mutual Fund Tournaments’, Journal of Financial and Quantitative Analysis, 36, 53–73.CrossRefGoogle Scholar
  9. Chevalier, J. and Ellison, G. (1997) ‘Risk Taking by Mutual Funds as a Response to Incentives’, Journal of Political Economy, 105, 1167–200.CrossRefGoogle Scholar
  10. Chevalier, J. and Ellison, G. (1999) ‘Career Concerns of Mutual Fund Managers’, Quarterly Journal of Economics, 114, 389–432.CrossRefGoogle Scholar
  11. Christopherson, J. A., Person, W. E. and Glassman, D. A. (1998a) ‘Conditioning Manager Alphas on Economic Information: Another Look at the Persistence of Performance’, Review of Financial Studies, 11, 111–42.CrossRefGoogle Scholar
  12. Christopherson, J. A., Person, W. E. and Glassman, D. A. (1998b) ‘Conditioning Measures of Performance and Persistence for Pension Funds’, in A. H. Chen (ed.) Research in Finance, Vol. 16, JAI Press, Stamford, CT, 1–46.Google Scholar
  13. Coggin, T. D., Fabozzi, F.J. and Rahman, S. (1993) ‘The Investment Performance of US Equity Pension Fund Managers: An Empirical Investigation’, Journal of Finance, 48, 1039–55.CrossRefGoogle Scholar
  14. Del Guercio, D. (1996) ‘The Distorting Effect of Prudent Man Laws on Institutional Equity Investments’, Journal of Financial Economics, 40, 31–62.CrossRefGoogle Scholar
  15. Dybvig, P. H., Farnsworth, H. K. and Carpenter, J. N. (2000) ‘Portfolio Performance and Agency’, mimeo, Washington University in St Louis.Google Scholar
  16. Elton, E. J., Gruber, M. J., Das, S. and Hlavka, M. (1993) ‘Efficiency with Costly Information: A Reinterpretation of Evidence from Managed Portfolios’, Review of Financial Studies, 6, 1–22.CrossRefGoogle Scholar
  17. Fama, E. F. and MacBeth, J. (1973) ‘Risk, Return and Equilibrium: Empirical Tests’, Journal of Political Economy, 81, 607–36.CrossRefGoogle Scholar
  18. Ferson, W. F. and Schadt, R. W. (1996) ‘Measuring Fund Strategy and Performance in Changing Economic Conditions’, Journal of Finance, 51, 425–62.CrossRefGoogle Scholar
  19. Gomez, J-P. and Sharma, T. (2001) ‘Providing Managerial Incentives: Do Benchmarks Matter?’, mimeo, Norwegian School of Management.Google Scholar
  20. Greene, W. (1999) Econometric Analysis, Prentice-Hall International, London.Google Scholar
  21. Grinblatt, M. and Titman, S. (1989) ‘Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings’, Journal of Business, 62, 393–416.CrossRefGoogle Scholar
  22. Grinblatt, M. and Titman, S. (1992) ‘The Persistence of Mutual Fund Performance’, Journal of Finance, 47, 1977–84.CrossRefGoogle Scholar
  23. Halpern, P. and Fowler, I. (1991) ‘Investment Management Fees and the Determinants of Pricing and Structure in the Industry’, Journal of Portfolio Management, Winter, 74–9.Google Scholar
  24. Hendricks, D., Patel, J. and Zeckhauser, R. (1993) ‘Hot Hands in Mutual Funds: Short-run Persistence ol Relative Performance, 1974–88’, Journal of Finance, 48, 93–130.CrossRefGoogle Scholar
  25. Hong, H., Kubik, J. D. and Solomon, A. (2000) ‘Security Analysts’ Career Concerns and Herding of Earnings Forecasts’, Rand Journal of Economics, 31, 121–44.CrossRefGoogle Scholar
  26. Jensen, M. C. (1972) ‘Optimal Utilization of Market Forecasts and the Evaluation of Investment Portfolio Performance’, in G. P. Szego and K. Shell (eds) Mathematical Methods in Investment and Finance, North-Holland, Amsterdam, 310–35.Google Scholar
  27. Kay, J., Laslett, R. and Dully, N. (1994) ‘The Competitive Advantage of the Fund Management Industry in the City of London’, Subject Report 9, The City Research Project, Corporation of London, London.Google Scholar
  28. Lakonishok, J., Shleiler, A. and Vishny R. W. (1992a) ‘The Structure and Performance of the Money Management Industry’, Brookings Papers: Microeconomics, 339–91.Google Scholar
  29. Lakonishok, J., Shleiler, A. and Vishny, R. W. (1992b) ‘The Impact of Institutional Trading on Stock Prices’, Journal of Financial Economics, 32, 23–43.CrossRefGoogle Scholar
  30. Lambert, E. (1998) ‘Herding Instinct’, Pensions Management, January, 44–5.Google Scholar
  31. Lehmann, B. N. and Modest, D. M. (1987) ‘Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons’, Journal of Finance, 42, 233–65.CrossRefGoogle Scholar
  32. Malkiel, B. G. (1995) ‘Returns Irom Investing in Equity Mutual Funds, 1971 to 1991’, Journal of Finance, 50, 549–72.CrossRefGoogle Scholar
  33. Newey W. K. and West, K. D. (1987) ‘A Simple, Positive Semi-Definite Heteroskedasticity- and Autocorrelation-Consistent Covariance Matrix’, Econometrica, 55, 703–708.CrossRefGoogle Scholar
  34. Pesaran, M. H. and Timmermann, A. (1995) ‘Predictability of Stock Returns: Robustness and Economic Significance’, Journal of Finance, 50, 1201–28.CrossRefGoogle Scholar
  35. Prosser, D. (1995) ‘Segregated Funds: The Big Game Hunt is Over’, Pensions Management, March, 45–62.Google Scholar
  36. Shanken, J. (1992) ‘On the Estimation of Beta Pricing Models’, Review of Financial Studies, 5, 1–33.CrossRefGoogle Scholar
  37. Sirri, E. and Tulano, P. (1998) ‘Costly Search and Mutual Fund Flows’, Journal of Finance, 53, 1589–622.CrossRefGoogle Scholar
  38. Stevenson, M. (1993) ‘Investment Management Survey’, The Economist, 27th November.Google Scholar
  39. Thomas, A. and Tonks, I. (2000) ‘Equity Performance and Segregated Pension Fund in the UK’, Discussion Paper 00/26, Centre for Market and Public Organisation, University of Bristol.Google Scholar
  40. Treynor, J. and Mazuy F. (1966) ‘Can Mutual Funds Outguess the Market?’, Harvard Business Review, 44, 131–6.Google Scholar
  41. Trueman, B. (1994) ‘Analyst Forecast and Herding Behaviour’, Review of Financial Studies, 7, 97–124.CrossRefGoogle Scholar
  42. Zwiebel, J. (1995) ‘Corporate Conservatism and Relative Compensation’, Journal of Political Economy, 103, 1–25.CrossRefGoogle Scholar

Copyright information

© The Editor(s) 2016

Authors and Affiliations

  • David Blake
    • 1
    • 2
    • 3
    • 4
    • 5
    • 6
    • 7
    • 8
    • 9
  • Bruce N. Lehmann
    • 10
    • 11
    • 12
  • Allan Timmermann
    • 13
    • 14
    • 15
    • 16
    • 17
  1. 1.Pensions Institute, Birkbeck CollegeUniversity of LondonLondonUK
  2. 2.Birkbeck CollegeUniversity of LondonUK
  3. 3.Square Mile ConsultantsUK
  4. 4.Financial Markets GroupLondon School of EconomicsUK
  5. 5.UBS Pensions Research CentreLondon School of EconomicsUK
  6. 6.Centre for Risk and Insurance StudiesUniversity of Nottingham Business SchoolUK
  7. 7.Securities Industry ProgrammeCity University Business SchoolUK
  8. 8.London Business SchoolUK
  9. 9.London School of EconomicsUK
  10. 10.University of San DiegoUSA
  11. 11.Journal of Financial MarketsUSA
  12. 12.Investment Advisory BoardUniversity of California Retirement System and EndowmentUSA
  13. 13.University of California San DiegoUSA
  14. 14.Centre for Economic Policy ResearchUSA
  15. 15.Journal of ForecastingUSA
  16. 16.Journal of Business and Economic StatisticsUSA
  17. 17.Journal of Economic Dynamics and ControlUSA

Personalised recommendations