Asset Managers: Institutional Performance and Factor Exposures

Using data on $18 trillion of assets under management, we show that actively managed institutional accounts outperformed strategy benchmarks by 75 (31) bps on a gross (net) basis during the period 2000 to 2012. Estimates from a Sharpe model imply that asset managers' outperformance came from fa...

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Bibliographic Details
Published in:The Journal of finance (New York) 2021-08, Vol.76 (4), p.2035-2075
Main Authors: GERAKOS, JOSEPH, LINNAINMAA, JUHANI T., MORSE, ADAIR
Format: Article
Language:English
Subjects:
Analysis
Asset management
Assets
Business schools
Financial institutions
Financial markets
Institutional investments
Mutual funds
Portfolios
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Summary:Using data on $18 trillion of assets under management, we show that actively managed institutional accounts outperformed strategy benchmarks by 75 (31) bps on a gross (net) basis during the period 2000 to 2012. Estimates from a Sharpe model imply that asset managers' outperformance came from factor exposures. If institutions had instead implemented mean‐variance efficient portfolios using index and institutional mutual funds available during the sample period, they would not have earned higher Sharpe ratios. Our results are consistent with the average asset manager having skill, managers competing for institutional capital, and institutions engaging in costly search to identify skilled managers.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.13026