Flows impact on pension funds. Evidence from UK conventional and social responsible pension funds

Abstract

We study the determinants of flows and their impact on managers’ abilities in UK conventional and socially responsible (SR) pension funds. We examine three aspects barely documented in pension funds. First, flows may be affected by the fact that pension fund investors are restricted because they cannot disinvest until retirement, although they can switch the investment to another fund. Second, as both pension funds and SR funds are concerned with social welfare, SR pension funds present a special social interest and possibly different behavior. Third, the influence of flows on style timing abilities, as far as we are aware, has not been studied before. Our results indicate that both pension funds experience greater flows when they are younger and smaller, and have received flows in the past. Managers present negative stock-picking and poor timing abilities, independently of flows.