The case against active pension funds: Evidence from the Turkish Private Pension System

Using data on private Turkish pension funds we show that most active managers are not able to provide performance beyond what could be achieved by passive indexing. The average fund beats its benchmark by only 26 basis points, before fees. We also observe herding behavior among managers' asset allocation decisions which can potentially explain their lack of overperformance. Our results strongly support the need for low-cost index funds in emerging market countries that are reforming their pension schemes. We further recommend regulatory oversight on the “activeness” of funds and introduction of default plans with more balanced asset allocations.