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Fund managers' political leanings sway the way they vote, impacting company governance at the expense of its performance, Massimo Massa and Lei Zhang write.…
How governance must pivot in the face of accelerating change.
A Harsh Appraisal The article, by Massimo Massa, Rabih Moussawi, and Andrei Simonov, fiercely criticizes its subject. The authors find that target-date funds underperform other funds to a "staggering" degree. This shortfall occurs because target-date funds "exploit" their relatively captive audiences, which are unlikely to punish subpar returns by redeeming their shares. For a similar reason, target-date funds also get away with "fee skimming." I agree with the authors' initial assumptions. They are correct that target-date funds have unusually loyal shareholders who are relatively insensitiv...
The paper says managers do this by delivering lower performance of 2.9 basis points (bps) for each year from the vintage year. For an investor holding the fund for 50 years, that would mean a 21% reduction in performance. The researchers—Massimo Massa, a professor of banking and finance at nonprofit university INSEAD; Rabih Moussawi, an associate professor of finance at Villanova University; and Andrei Simonov, a professor of finance at Michigan State University—also say that TDFs invest in more expensive share classes of underlying funds because TDFs often invest in funds in their own fu...