Focus on Research

September 16, 2011 11:46 am

When bigger is better

How pension funds are managed and savings invested in these funds can make a significant difference to the ultimate pension pot. Now professors from the Rotman School of Management at the University of Toronto state that bigger really is better when it comes to pension funds.

There are “economies of scale” with larger funds they say, those pension funds with an average of $37bn in assets. According to their research they add, such funds outperform smaller plans, those that have around $1bn in assets, by 0.4 per cent a year.

Lukasz Pomorski, an assistant professor of finance at Rotman with Alexander Dyck, a professor in pension management say that although the annual difference sounds small “it is huge economically” since it can amount to a pension that is 13 per cent larger on retirement for employees who have invested in the plan for their full working lives.

The authors of Is bigger better? Size and performance in pension plan management suggest that the reasons for these economies of scale lie in the fact that the larger funds make much greater use of in-house management with all the related savings. Furthermore these larger funds they add can be more flexible in their investments, investing in assets such as real estate and private equity with associated lower costs and higher gross returns.

The authors suggest that one potential solution would be for larger funds “to manage the assets of smaller pension plans”.

We are all familiar with the pain of rejection - not being invited to a party, or being excluded in a conversation. Now a psychology academic and an assistant professor of management and organisation have examined the impact of social rejection.

They have concluded that even if individuals are sympathetic to the social snubs experienced by another, they do not understand how upset the person concerned actually feels.

Loran Nordgren, an assistant professor of management and organisations at the Kellogg School of Management and Geoff MacDonald, an associate professor at the University of Toronto, with Kasia Banas, at the time a masters student at VU University Amsterdam looked at what is described as the empathy gap. Previous research has identified how although an individual can see that someone is suffering from physical pain, they underestimate just how painful an injury really is.

The academics wondered if the empathy gap could also be applied to the pain of social rejection. They questioned whether when witnessing a social snub - such as ignoring someone sitting alone eating lunch - the individual really appreciated how excluded and hurt the solo diner felt. If an individual does not understand just how painful bullying is, then he or she does not know either how much comfort the victim requires or how much the bully should be punished.

The academics ran a series of experiments in which participants played a computer game in which for some of the time some of the participants were excluded. When subsequently questioned about a series of fictitious unpleasant events, including two events involving being socially snubbed, those who had been excluded in the computer game reacted more strongly than the other participants.

“As anyone who’s had to manage a lot of people can tell you, human beings are extremely sensitive to fairness and where they stand in the social order,” says Prof Nordgren. “When we are excluded, we feel it acutely.”

The academics findings could have a bearing in the workplace. For example dealing with unkind colleagues and how managers handle other types of social pain that would in turn determine policies on bereavement leave.

The academics accept that while there may not be a solution to dealing with such types of social pain, the very fact that individuals become aware of it means that they could then alter their behaviour accordingly.

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