The Importance of Asset Allocation, Investment Policy and Active Management in Explaining Turkish Pension Fund Return Variations
Nazlı Kalfa Baş, Serra Eren Sarıoğlu

Abstract
Which one is more important in explaining the return variations of pension funds? Market movement, asset allocation policy or active management? We explore the subject for Turkish equity and balanced pension funds for the period July 2007 to July 2017. This paper sheds a new light on pension funds’ sources of performance from an emerging market perspective. Our first empirical investigation confirms the widely held belief that market movement is the dominant factor and leaves a little room for active management. However, the effect of the dominance changes depending on the pension fund category. The less restricted funds in their investment decisions perform higher active management ability. Our second and more refined analysis which removes the dominance of market movement component of total return, reveal a different picture. Our findings show that the active management and asset allocation have nearly an equal amount of explanatory power on the variations of balanced pension fund returns. However, for the equity pension funds does the active management provide a significantly higher performance than asset allocation policy.

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