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DISCUSSION PAPER PI-0810

Can UK Pension Fund Managers Time the Market?

Andrew Clare, Keith Cuthbertson, Dirk Nitzsche and Stephen Thomas

The UK’s defined benefit pensions industry makes widespread use of pooled
investment vehicles which are provided by a large number of fund management
groups. In this paper we test whether the managers of these unitised vehicles have
market timing ability. Using data on 734 pooled funds, ranging from UK equity to
funds specialising in Pacific Basin equities, we found almost no statistically significant
evidence that the managers of these funds had any market timing ability over our
twenty five year sample period from 1980 to 2004. With increasing numbers of UK
fund managers purporting to be able to provide “high alpha” products to the UK’s
beleaguered pensions industry, our results do not give us great confidence that the
solution to the widespread deficits lies in the hands of the UK’s active institutional
investment managers.

Keywords: UK pooled pension fund performance, Henriksson and Merton, Treynor
and Mazuy, non-parametric performance test.