Incentive Fees and Competition in Pension Funds: Evidence from a Regulatory Experiment

Assaf Hamdani, Eugene Kandel, Yevgeny Mugerman, Yishay Yafeh*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

12 Scopus citations


Concerned with excessive risk-taking, regulators worldwide generally prohibit performance-based fees in pension funds. Presumably, competition can substitute for incentive pay in providing incentives for fund managers to serve their clients’ interests. Using a regulatory experiment from Israel, we compare the performance of three exogenously-given long-term savings schemes: Funds with performance-based fees, facing no competition; funds with assets-under-management (AUM)-based fees and virtually no competition; and funds with AUM-based fees, operating in a competitive environment. Funds with performance-based fees exhibit the highest risk-adjusted returns without assuming more risk. Competitive pressure is not associated with similar outcomes, suggesting that incentives and competition are not substitutes in the retirement savings industry.

Original languageAmerican English
Pages (from-to)49-86
Number of pages38
JournalJournal of Law, Finance, and Accounting
Issue number1
StatePublished - 6 Jun 2017

Bibliographical note

Publisher Copyright:
©2017 A. Hamdani, E. Kandel, Y. Mugerman, and Y. Yafeh.


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