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Performance Clustering and Incentives in the UK Pension
Fund Industry*

David Blake, Bruce Lehmann and Alan Timmermann

Pensions Institute, Birkbeck College, University of London and
University of California, San Diego


Despite pension fund managers being largely unconstrained in their
investment decisions, this paper reports evidence of clustering in the
performance of a large cross-section of UK pension fund managers
around the median fund manager. This finding is explained in terms of
the predominance of a single investment style (balanced management),
the fee structures and incentives operating in the UK pension fund industry
to maximise relative rather than absolute performance, the high concentration
in the UK pension fund industry and the low turnover of fund managers.
Fund size appears to be the only variable that can account for an important
fraction of the cross-sectional variation in measured performance.

ISSN 1367-580x.