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Asset Allocation Dynamics and Pension Fund Performance*

David Blake, Bruce Lehmann and Alan Timmerman

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


This paper analyses the performance of a large cross-section of UK
pension funds. We find strong evidence of clustering in ex post average
performance across pension fund portfolios as a whole as well as
within asset classes. While there are robust differences in average
performance in Jensen-style regressions from sources such as risk
adjustment and the use of alternative peer-group and external benchmarks,
the resulting cross-sectional variation in measured abnormal performance
was virtually identical to that of the raw return data. Fund size appears to
be the only variable that can account for an important fraction of the
cross-sectional variation in measured performance. We explain these
results in terms of the incentives operating in the UK pension fund industry.

* We would like to thank Gordon Bagot and Val Ashmore of the WM Company
for advice on interpreting the data used in this study. Comments from an
anonymous referee also helped to improve the paper.

ISSN 1367-580x.