Destruction Of Value: An Analysis Of Manager Selection Decisions By Institutional Plan Sponsors

Prior research has examined the institutional asset management industry and documented the factors which influence plan sponsors' decisions to place assets with investment products or managers. This paper focuses on whether these decisions add value to the investment portfolios of pension plans, endowments and foundations. Results document that plan sponsors may not be acting in their stakeholders' best interests when they make rebalancing or re-allocation decisions. Investment products to which money is moved subsequently under-perform products from which it is withdrawn.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 a combination of style and manager selection decisions.