Choosing Investment Managers and Monitoring their Progress

Amit Goyal (University of Lausanne and Swiss Finance Institute), Sunil Wahal (Arizona State University) and M. Deniz Yavuz (Purdue University) provided valuable insights in pre-hiring returns, pre-existing personal connections between decision makers (published by Swiss Finance Institute). Their following quotes highlight some key findings:

“We study how plan sponsors choose investment management firms from their opportunity set when delegating $1.6 trillion in assets between 2002 and 2017. Two factors play an influential role in choice: pre-hiring returns, and pre-existing personal connections between personnel at the plan (or consultant advising the plan), and the investment management firm. Post-hiring returns for chosen firms are significantly lower than those for unchosen firms. The post-hiring returns of firms with relationships are, at best, indistinguishable from those without relationships, and often significantly worse. While relationships are conducive to asset gathering by investment managers, they do not appear to generate commensurate benefits for plan sponsors via higher gross returns or lower fees.”


“To understand the consequences of selection driven (in part) by connections, we study post- hiring returns. The average three-year post-hiring cumulative returns for hired investment managers are lower than for the opportunity set by 0.85 percent with a t-statistic of 2.58. At the minimum, these results suggest that plan sponsors have no discernable selection ability.”

The research team underlines the importance of “monitoring the performance of chosen and not chosen asset managers. provides eight different request formats, including the Monitoring Request which asset owners can use to keep track on the performance of asset manager strategies and funds over time based on a fully customizable data table(s).


“We find two aspects of the choice to be critically important: prior performance and personal connections between individuals employed by these institutions. A cautious reading of the overall evidence suggests that there are no positive excess returns to selection based on either prior performance or connections. But there are a variety of tests in which post-hiring excess returns, both with and without connections, are negative.”


When comparing the returns of hired investment managers and the opportunity set, when there are no connections between plan sponsor and investment manager, when there are connections and when the connection is between the investment consultant and the investment manager. Broadly the results show negative returns in selection, even when investment consultants are involved.


“The overall results imply that plan sponsors display no ability in investment manager selection with respect to gross investment returns. The post-hiring returns of chosen managers are, on average, about 1 percent lower than the returns of managers that the plan sponsors could conceivably have chosen from the opportunity set. We reiterate that the opportunity set is fully investable.”


Swiss Finance Institute (SFI) is the national center for fundamental research, doctoral training, knowledge exchange, and continuing education in the fields of banking and finance. SFI’s mission is to grow knowledge capital for the Swiss financial marketplace. Created in 2006 as a public–private partnership, SFI is a common initiative of the Swiss finance industry, leading Swiss universities, and the Swiss Confederation.