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FIIE-10: Asset Management
Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations
1University of Texas at Austin; 2University of Illinois at Urbana-Champaign; 3Indiana University; 4Board of Governors of the Federal Reserve System
Using a hand-collected dataset on investment menus for a large sample of 401(k) plans, we examine the effects of a 2012 regulatory reform of investment option disclosures on participants' allocations across funds. Despite skepticism surrounding the effectiveness of the regulation, we show that participants become significantly more attentive to expense ratios after the reform. The results are stronger for plans with larger account balances and those that are non-unionized. Additionally, they are not driven by secular changes in investor attention or sponsor-initiated changes to the investment menu before the reform. Finally, we find that flows also become more sensitive to short-term performance measures.
Finding Fortune: How Do Institutional Investors Pick Asset Managers?
1Indiana University, Bloomington, United States of America; 2University of North Carolina, Chapel Hill; 3Tulane University
We propose a framework of private information acquisition and decision timing for asset allocators who hire outside investment managers. We test the framework using unique data detailing due diligence interactions between an allocator and 1,093 hedge funds over 8 years. We find that the production of private information complements public information at the intensive margin and substitutes it at the extensive margin. The allocator strategically chooses the precision at which to acquire private signals, reducing due diligence time by 58% and improving decision quality. In a matched sample, selected funds outperform by 9.0% over 20 months. This outperformance relates to learning about funds’ return-to-scale constraints and innate skill earlier than other asset allocators.
How much labor do you need to manage capital?
1Boston College, United States of America; 2Bocconi University
We use employment data for U.S. registered investment advisors (RIAs) to investigate which clienteles, asset classes, and investment strategies require more labor, and to study the marginal value of labor in investment management. After controlling for observables, having more employees is not associated with better returns. However, a larger payroll is associated with more assets under management in the future, justifying the additional labor costs from the firm’s point of view. Our results are consistent with a simple model in which investment firms optimize marketing-related versus investment-related employment under labor market frictions.
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Conference: EFA 2019
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