Abstract
ABSTRACT From 2005 to 2015, the total assets managed by open private pension funds increased more than six times in Brazil, where the Free Benefit Generating Plan (PGBL) and the Free Benefit Generating Life (VGBL) represent 90% of these assets. However, private pension institutions are characterized by the collection of high management fees, thus keeping for themselves much of the benefits offered by the government as incentive for investment in this modality. High management fees are justified only when there is active management of these funds, theoretically generating higher performance: this study indicates that this is not the case in this market segment. Similar problems have been faced in other countries, such as the United Kingdom, Denmark, and Sweden, which filed investigation concerning funds that charge high management fees for active management, while they actually provide management that may be regarded as passive. This demonstrates the scale and relevance of this issue, which has been surveyed and addressed by this study. To do this, dynamic style analysis was performed, through rolling regressions, followed by Kalman filter analysis in funds from the top-five private pension institutions in Brazil. Analyzing the exposure evolution of these funds to various asset classes and the R2 generated, passivity traces were found, mainly in composite variable income funds. Such funds are precisely those that should be more actively managed, as they charge the highest management fees. This article also demonstrates it is possible to build a passive portfolio, having a very similar style and returns without statistically significant differences, but at a lower management fee (and aligned with passive funds).
Highlights
Carlos Heitor Campani & Leonardo Mesquita de Brito e open private pension market has been growing consistently in Brazil for at least 10 years, at an average rate of 20% per year (p.y.), reaching the mark of R$ 500 billion in 2015, according to data provided by the Brazilian National Federation of Private Pension and Life (FenaPrevi)
Plans known as the Free Bene t Generating Plan (PGBL) and the Free Bene t Generating Life (VGBL) have become very popular and they currently account for 90% of the sector, making up almost all new products
The Brazilian income tax (IR) is deferred for redemptions only and there is the possibility of using a much more generous regressive IR chart with long-term investors. Such plans are structured as Brazilian specially constituted investment funds (FIEs); more details can be found in Campani and Costa (2016)
Summary
Carlos Heitor Campani & Leonardo Mesquita de Brito e open private pension market has been growing consistently in Brazil for at least 10 years, at an average rate of 20% per year (p.y.), reaching the mark of R$ 500 billion in 2015, according to data provided by the Brazilian National Federation of Private Pension and Life (FenaPrevi) In this market, plans known as the Free Bene t Generating Plan (PGBL) and the Free Bene t Generating Life (VGBL) have become very popular and they currently account for 90% of the sector, making up almost all new products. We introduce the methodology, as well as the data used, and we present the results, analyses, and conclusions
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