Investment Performance of Private Pension Funds in Five Asia Countries : a Comparative Analysis

Loh, Wen Yan (2020) Investment Performance of Private Pension Funds in Five Asia Countries : a Comparative Analysis. Masters thesis, Tunku Abdul Rahman University College.

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Abstract

This paper examines the investment performance of private pension funds in 5 selected Asia countries: Hong Kong, South Korea, Malaysia, Singapore and Thailand, segregated by fund universes: Growth, Moderate and Conservative Fund. The study period employed is 6 years with monthly observations of 72 and a total of 931 pension fund samples in the 5 Asia countries. The management fees charged against the gross return of pension funds are taken into consideration to allow for the comparisons of funds’ performance before and after fees are charged. The renounced models of Fama-French and Treynor-Mazuy were combined in creating a hybrid model which mimics the Fama and French (1993) factors and market timing skills of fund managers by Treynor and Mazuy (1966). The empirical findings of this paper imply that the investment performance of most private pension funds in these 5 Asia countries have inferior performance even before the consideration of fees. Hence, private pension funds in Asia are unable to help investors in building extra retirement wealth on average. The author also finds that only Growth (equity) Fund exhibits superior investment performance with positive abnormal excess return before fees are taken into consideration, outperforming the Moderate (balanced) and Conservative (bond) Fund. Nonetheless, management fees charged against investors do have a significant impact in deteriorating the performance of private pension funds. The findings of this paper provide insights to investors in making better informed investment decisions in the choice of additional saving vehicle through private pension funds by revealing the performance and risks of each category of funds. Furthermore, the findings of this paper employing the factors model may provide insights to fund managers in building pension fund’s portfolio according to the factor premium present in pension funds. The findings may also have implications to the local policy makers in Asia in reconsidering the measures or approaches taken to elevate the retirement incomes of investors. Nonetheless, the performance of private pension funds in Asia should be revisited as the short study period employed in this paper may be insufficient in fully capturing the excess returns of pension funds. Future research may include bond factors of Fama-French in Growth Fund to examine the common risk factors shared between equity and bond funds. This paper fills the research gaps of existing literature by examining the performance of private pension funds in Asia region which was overlooked by past studies. In addition, all 3 main categories of pension funds available in the market are evaluated in this study in which balanced and bond pension funds were paid little attention to previously as previous studies demonstrate evidence on merely the performance of equity pension funds. With that, this paper contributes to the existing literature body by including balanced funds and bonds funds, evaluating all 3 main categories of pension funds available: Growth (equity), Moderate (mixed assets) and Conservative (bond) Fund. Lastly, the adoption of hybrid model incorporating the 2 standard performance models: Fama and French (1993) and Treynor and Mazuy (1966) is a new attempt in evaluating the performance of pension funds.