Abstract
ABSTRACT This paper analyzes the performance of Free Benefit Generating Plans (Plano Gerador de Benefício Livre - PGBL) and Free Benefit Generating Life (Vida Gerador de Benefícios Livres - VGBL) funds in the Brazilian market. This paper is unique when it comes to segregate funds managed by pure insurance companies (PICs) from those managed by large retail banks. We also discuss the impact of characteristics such as administration fee and fund size in the fund performance. The academic literature does not consider the differentiation between funds characteristics neither the type of institution that manages them. Furthermore, the available studies on this market are usually simple and, for example, do not use multifactor models to measure risk adjusted performances. The PGBL and VGBL funds performances are object of great interest since their market grows sustainably and quickly. Funds underperforming the market should improve their strategies and decrease administration costs to deliver better net performances. This work aims at improving the market competition, such that retirement products remain attractive to investors. We develop two multifactor models representing the risk sources for each class of funds analyzed (conservative and aggressive funds). The performance is thus measured by Jensen's alpha, although we also analyze realized returns and volatilities. We also develop a multifactor model based on administrative fee and fund’s size to capture the PIC effect. Our results suggest that PGBL and VGBL funds managed by PICs perform better in terms of higher average returns with no extra volatility, when compared to similar funds managed by companies linked to large retain banks. We found that higher administrative fees do not payout and it might even destroy value in the case of funds that invest in stocks. Larger funds presented higher net returns with no extra volatility. Finally, the analysis confirmed, with statistical evidence, the higher net returns of funds controlled by PICs in two situations: (i) after controlling for administrative fee and size of the fund - from 0.8 to 1% more per year; and (ii) after controlling for market risk sources - from 0.64 to 1.18% more per year.
Highlights
William Clem Soares & Carlos Heitor CampaniOne of the hot topics in the Brazilian economy is the pension and social security system
Our results suggest that PGBL and VGBL funds managed by pure insurance companies (PICs) perform better in terms of higher average returns with no extra volatility, when compared to similar funds managed by companies linked to large retain banks
The purpose of this paper is to compare the performance of PGBL/VGBL retirement funds, differentiating PICs from companies linked to large retail banks
Summary
William Clem Soares & Carlos Heitor CampaniOne of the hot topics in the Brazilian economy is the pension and social security system. Many researchers argue that the primary structure (public) for pensions is financially unsustainable and, risky for future retirees. A good alternative to protect future incomes from any modification made in the primary system is in the complementary (private) pension system. In Brazil we can differentiate two kinds of vehicles in the private pension system: pension funds and specially constituted investment funds (fundo de investimento especialmente constituído – FIE). The pension funds term is used to describe funds managed by non- profit institutions, which do not provide open access to the general public, but only for employees from certain companies. The term FIE is used to describe the legal vehicle used by for-profit open-access pension institutions; the participation is available to every Brazilian citizen, according to his own decision. FIE are the ones linked to plans like Free Benefit Generating Plan (Plano Gerador de Benefício Livre – PGBL) and Free Benefit Generating Life (Vida Gerador de Benefícios Livres – VGBL), which are the focus of this article
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