Performance clustering and incentives in the UK pension fund industry

Abstract

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.