Fund Managers and Their Investors

Chapter 3 examines the mechanisms through which clients impact fund managers’ practices and vice versa. The discussion encompasses fixed income investment as well as investment in shares. In both fixed income and shares, clients can include both institutional investors (such as pension funds) and retail investors (i.e. private individuals, though often guided by financial advisers). Their reasons for investment vary, leading to different time-horizons on their decisions, different ways of measuring performance, and different forms of interaction with the rest of the investment chain. They often rely on various types of advisers: investment consultants, independent financial advisers, and fund-rating companies. Variations of those kinds among the clients influence fund managers’ investment decisions, whether intentionally or not. Thus, the chapter suggests that the client–fund manager relationship is not a simple principal–agent problem, but a multi-faceted, contextually dependent, malleable matter.

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Behavioural, Socio-economic Factors, Financial Literacy and Investment Decisions: Are Men More Rational and Women More Emotional?

The Indian Economic Journal ◽

10.1177/0019466220987023 ◽

2021 ◽

pp. 001946622098702

Author(s):

Swati Prasad ◽

Ravi Kiran ◽

Rakesh Kumar Sharma

Keyword(s):

Financial Literacy ◽

Structural Equation ◽

Investment Decisions ◽

Jel Classification ◽

Economic Factors ◽

Fund Managers ◽

Multivariate Technique ◽

Retail Investors ◽

Behavioural Factors ◽

Socio Economic Factors

This study covers the gender-wise analysis of how behavioural factors and socio-economic factors along with the level of financial literacy influence investment decisions of Indian retail investors. Equally pertinent is to understand that will it have a different influence and bearing on males and females. Multivariate technique partial least squares-structural equation modelling (PLS-SEM) has been applied to develop the model and analyse the results. The study used a structured questionnaire for collecting data from retail investors. The findings of PLS-SEM show that in both genders, behavioural factors, socio-economic factors and financial literacy factors significantly affect investment decisions. However, the findings demonstrate that for women investors, the model is more effective. This study may be useful for prospective fund managers as, in many earlier studies, women are considered to be risk aversive. The results demonstrate that there is a need to target women, and the scenario today is not similar to the pre-existing ones. JEL Classification: G110, G4

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Challenging investment decision-making in pension funds

Qualitative Research in Financial Markets ◽

10.1108/qrfm-03-2018-0039 ◽

2019 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Carl-Christian Trönnberg ◽

Sven Hemlin

Keyword(s):

Decision Making ◽

Critical Incident ◽

Pension Fund ◽

Investment Decision ◽

Investment Decisions ◽

Pension Funds ◽

Content Type ◽

Fund Managers ◽

Intuitive Thinking ◽

Investment Decision Making

PurposeThe purpose of this study was to gain a better understanding of pension fund managers investment thinking when confronted with challenging investment decisions. The study focuses on the theoretical question of how dual thinking processes in experts’ investment decision-making emerge. This question has attracted interest in economic psychology but has not yet been answered. Here, it is explored in the context of pension funds.Design/methodology/approachThe sample included 22 pension fund managers. The authors explored their decision-making by applying the critical incident interview technique, which entailed collecting investment decisions that fund managers retrieved from recent memory (Flanagan, 1954). Questions concerned the investment situation, the decision-making process and the challenges and uncertainties the fund managers faced.FindingsMany of the 61 critical incidents examined concerned challenging (mostly stock) investments based on extensive analysis (e.g. reliance on external analysts for advice; analysis of massive amounts of hard company and stock market information; scrutiny of company reports and personal meetings with CEOs). However, fund managers to a high degree based their decisions on soft information judgments such as experience and qualitative judgements of teams. The authors found heuristics, intuitive thinking, biases (sunk cost effects) and social influences in investment decision-making.Research limitations/implicationsThe sample is small and not randomly selected.Practical implicationsThe authors suggest anti-bias training and better acquaintance with human forecasting limitations for pension fund managers.Originality/valuePension fund managers’ investment thinking has not previously been investigated. The authors show the types of investment situations in which analytical and intuitive thinking and biases occur.

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Institutional Investor Expectations, Manager Performance, and Fund Flows

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109017000850 ◽

2017 ◽

Vol 52 (6) ◽

pp. 2755-2777 ◽

Cited By ~ 5

Author(s):

Howard Jones ◽

Jose Vicente Martinez

Keyword(s):

Asset Allocation ◽

Institutional Investors ◽

Investment Decisions ◽

Fund Flows ◽

Past Performance ◽

Fund Managers ◽

Future Performance ◽

Manager Performance ◽

The Impact ◽

Allocation Decisions

Using survey data, we analyze institutional investors’ expectations about the future performance of fund managers and the impact of those expectations on asset allocation decisions. We find that institutional investors allocate funds mainly on the basis of fund managers’ past performance and of investment consultants’ recommendations, but not because they extrapolate their expectations from these. This suggests that institutional investors base their investment decisions on the most defensible variables at their disposal and supports the existence of agency considerations in their decision making.

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Institutional investors vs retail investors

International Journal of Bank Marketing ◽

10.1108/ijbm-07-2019-0242 ◽

2019 ◽

Vol 38 (3) ◽

pp. 671-691

Author(s):

Haruna Babatunde Jaiyeoba ◽

Moha Asri Abdullah ◽

Khairunisah Ibrahim

Keyword(s):

Measurement Invariance ◽

Institutional Investors ◽

Quantitative Research ◽

Survey Methodology ◽

Investment Decisions ◽

Second Order ◽

Content Type ◽

Retail Investors ◽

Anchoring Bias ◽

The Difference

Purpose Guided by several pioneered studies, the purpose of this paper is to comprehensively investigate the investment behaviours of Malaysian retail and institutional investors in an attempt to identify whether the influence of psychological biases is equally applicable to investor divides. Design/methodology/approach The researchers have adopted a quantitative research design by way of survey methodology to obtain data from institutional and retail investors in Malaysia. In addition, the authors have mainly employed second-order measurement invariance analysis to uncover the difference across investor divides. Findings The tests of measurement invariance at the model level indicate an insignificant difference between institutional investors and retail investors. The post hoc test (at the path level) reveals that institutional and retail investors are similar with respect to representative heuristic, overconfidence bias and anchoring bias; though the results also show that they are different with respect to religious bias and herding bias. Research limitations/implications Based on the findings of this study, it is generally not logical to assume that institutional investors completely behave rational during investment decisions. Besides, future researchers are called upon to directly compare the investment decisions of institutional and retail investors with respect to whether the influence of psychological biases is equally applicable to them, particularly on the investigated psychological biases and other psychological biases that are not covered in this study. Originality/value This study has offered insight into whether the influence of psychological biases is equally applicable to institutional and retail investors in Malaysia using second-order measurement invariance analysis. This study is unique in context and the approach it has adopted.

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Does performance persistence exist in mutual and pension funds? Evidence from Turkey

Investment Management and Financial Innovations ◽

10.21511/imfi.18(4).2021.27 ◽

2021 ◽

Vol 18 (4) ◽

pp. 326-339

Author(s):

Tayfun Ozkan ◽

Hakki Ozturk

Keyword(s):

Performance Analysis ◽

Human Resource ◽

Investment Decisions ◽

Pension Funds ◽

Performance Persistence ◽

Fund Management ◽

Empirical Results ◽

Fund Managers ◽

Human Resource Policies ◽

Persistence Rate

The objective of this study is to investigate the performance persistence of Turkish mutual and pension funds. 310 mutual and 259 pension funds were analyzed between the period of 2010–2019 in order to determine if there is an evidence of performance persistence. In this study, a persistence rate is developed, and the skill ratio is used to crosscheck the results of the persistence rate. Furthermore, six different risk-adjusted return measures, such as Sharpe, Treynor, Information, Jensen’s alpha, Sortino, and Omega ratios are calculated to analyze whether funds also exhibit superior risk-adjusted returns. The results indicate that only 2% of funds demonstrate persistence above 50%, and 15 out of 20 fund categories do not have any funds that show persistence in 10 years. Most of the persistent funds have positive skill ratios, and it is observed that the persistence rate is effective. However, it cannot be stated that there is performance persistence in the Turkish fund management industry, since performance persistence is not evident for various fund types, so investors do not need to invest in the best funds of the previous year. Additionally, the empirical results associated with risk-adjusted performance analysis indicate that persistent funds also do not generally yield higher risk-adjusted returns. The lack of persistence in funds’ performance is a significant result for investors in their investment decisions, for fund managers in their human resource policies and bonus schemes, and for regulators in their policy decisions.

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Investment decision behaviour of the Malaysian retail investors and fund managers

Qualitative Research in Financial Markets ◽

10.1108/qrfm-07-2017-0062 ◽

2018 ◽

Vol 10 (2) ◽

pp. 134-151 ◽

Cited By ~ 3

Author(s):

Haruna Babatunde Jaiyeoba ◽

Abideen Adeyemi Adewale ◽

Razali Haron ◽

Che Muhamad Hafiz Che Ismail

Keyword(s):

Investment Decision ◽

Group Discussion ◽

Investment Decisions ◽

Structured Interviews ◽

Content Type ◽

Mixed Methods Approach ◽

Fund Managers ◽

Qualitative Thematic Analysis ◽

Retail Investors ◽

Practical Implications

Purpose This study aims to investigate the Malaysian retail investors and fund managers’ investment decision behaviours. The study offers an important opportunity for understanding the investors’ experiences, how they understand the Malaysian economy and their priorities for company selection. Other main aspects of this study are how investors mitigate the influence of emotions and psychological biases and challenges faced during investment decisions. Design/methodology/approach The researchers have mainly adopted an interpretivist approach for the present study. Qualitative data elicited through semi-structured interviews conducted with four retail investors and four fund managers were subjected to qualitative thematic analysis. Findings The results reveal that the investment decision processes of fund managers are more comprehensive than those of retail investors. Although both fund managers and retail investors acknowledge the influence of psychological biases on their investment decisions, the former use different and comprehensive approaches to mitigate such influences during investment decisions compared with the latter. Other important findings are how investors understand the Malaysian economy, their priorities for company selection and challenges faced during investment decisions. Research limitations/implications The researchers have interviewed eight carefully selected interviewees across retail investors and fund managers divide. Adopting other grouping criteria, focus group discussion with more respondents or adopting a mixed-methods approach may increase our understanding of the investment decision behaviours of Malaysian retail investors and fund managers. Practical implications This study could be used as a guide by both retail investors and fund managers when making investment decisions. Originality/value This research has included both retail investors and fund managers; it has also increased literature on investment decision and behavioural finance, particularly in the context of Malaysian investors and managers.

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