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Superannuation Funds: The Fees and Performance Debate: Discussion Paper No. 130

Drew, Michael E. (2003) Superannuation Funds: The Fees and Performance Debate: Discussion Paper No. 130. [Working Paper]

Abstract

Those who have followed the debate between Drew and Noland (2000)2 and Hayes (2001) in this journal will understand that the controversy surrounding one of the most hotly contested ideas in financial economics – market efficiency and fund manager skill – is truly alive and well. Drew and Noland (2000) and Hayes (2001) are both in agreement that idea of a market which is efficient in an informational sense represents more than a clash of theory with practice, it is a debate which strikes at the heart of how Australia’s AUD 500 billion pool of retirement savings should be managed3. Hayes (2001) is partial to the view that the “Australian equity market is not perfectly efficient‿ and that “active investment managers have been effectively exploiting these inefficiencies over the past 20 years.‿ The essence of Hayes’ (2001) argument seems to be that contribution of Drew and Noland (2000) is limited as it employed a methodology that considered post MER returns. Hayes (2001) suggests that that the received practice for evaluation is “based on raw data before fees and expenses‿ and that “MERs are management and administrative charges which have no relevance to the manager’s ability to outperform the index.‿ This reply offers an alternate view to Hayes’ (2001) claim of irrelevance of the MER in assessing manager performance. Specifically, we provide evidence in this paper of the impact of fees on the performance of both retail and wholesale funds managing domestic equities on behalf of superannuation investors. Two decades after the publication of Bird, Chin, and McCrae’s pioneering work “Superannuation fund managers – how do they rate?‿ in the JASSA of 1982, we are still debating the skill (or otherwise) of fund managers and its implications for efficient capital markets.

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ID Code: 386
Item Type: Working Paper
Keywords: fund manager skill, market efficiency
ISSN: 1324-5910
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 2003 (please consult author)
Deposited On: 25 Aug 2004
Last Modified: 05 Jan 2011 23:23

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