Is Governance Related to Investment Performance and Asset Allocation? Empirical Evidence from Swiss Pension Funds

Abstract

This study investigates the relationship between governance, investment performance and asset allocation of pension funds in Switzerland. Our sample includes survey data from 139 Swiss occupational pension plans for which we develop a governance metric comprising attributes of organisational design, management incentives, target setting, investment strategy, investment processes, risk management, monitoring, and transparency. We find empirical evidence that pension fund governance is positively related to excess returns, benchmark outperformance and Sharpe ratios. Pension funds in the top governance quartile outperform those in the bottom quartile by approximately 1% in terms of average excess returns and benchmark deviation. Furthermore, our study results indicate that asset allocation decisions are not related to governance, but rather to institutional factors.