Decentralized Investment Management: Evidence from the Pension Fund Industry
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- Author(s): David Blake, Alberto G. Rossi, Allan Timmmermann, Ian Tonks, Russ Wermers
- Published: Jan 30, 2013
- DOI: 10.1111/jofi.12024
Using a unique data set, we document two secular trends in the shift from centralized to decentralized pension fund management over the past few decades. First, across asset classes, sponsors replaced generalist balanced managers with better‐performing specialists. Second, within asset classes, funds replaced single managers with multiple competing managers following diverse strategies to reduce scale diseconomies as funds grow larger relative to capital markets. Consistent with a model of decentralized management, sponsors implement risk controls that trade off higher anticipated alphas of multiple specialists against the increased difficulties in coordinating their risk‐taking and greater uncertainty concerning their true skills.