Abstract
Recent concerns about the conflicts of interest faced by firm's executives who serve as fiduciaries in their employees' pension fund have prompted calls for independent fiduciaries. This paper provides formal evidence that supports the case for fiduciary independence. We find that, contrary to the well-established result that insiders as a group earn positive abnormal profits, pension funds that attain insider status earn substantial negative market-adjusted returns on their trades. The case for fiduciary independence is further strengthened by the fact that the negative returns are confined to separate accounts (pension funds that are created exclusively for a single company's employees) with potentially greater conflicts of interest, while commingled funds (funds that mingle the pension investments of multiple companies) do not earn negative returns.
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