The authors examine how investment policy, market timing, and security selection shaped pension portfolio performance. Studying 91 large plans over 10 years, they find policy explained 93.6% of return variation, while active management generally detracted from average returns, underscoring asset allocation’s dominant role.
Determinants of Portfolio Performance
Gary Brinson, Gilbert Beebower
Research
6 Pages
Key Takeaways
Policy Drives Variation: Investment policy explained an average 93.6% of total return variation across 91 large pension plans.
Active Management Detracted: Market timing reduced annual returns by 0.66%, while security selection reduced them by another 0.36%.
Return Gap Emerged: Policy portfolios averaged 10.11% annually versus 9.01% for actual portfolios, producing a 1.10% annual active return shortfall.
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