Performance, Perception, and Manager Selection

Abstract

Empirical evidence in the finance literature clearly demonstrates that institutional investors do not add value from selecting managers. Yet plan sponsors are highly confident in their manager selection abilities, as shown by results from three surveys reported in this article. The author proposes that the apparent inconsistency between performance and perception is due to investors using inappropriate benchmarks—specifically, they do not evaluate terminated managers. As evidence, the author presents regression results that show a near-zero statistical relationship between surveyed pension officers’ self-confidence and their belief in the importance of evaluating performance of investment decisions.