The effects of commission structure and performance on pension fund manager selection by affiliates in the Mexican pension fund industry
This dissertation studies the effects of commission structure and performance on pension fund manager (PFM) selection by affiliates in Mexico. I developed a general framework of equations to explain the different short- and long-term effects that derive from different commission structures in the context of mandatory savings regimes with individual accounts. From these equations I constructed a simple price level indicator, allowing cost-comparisons-both cross-sectional and over time- among PFMs. To gain insight into the effects of both competition and regulation-supervised and enacted by CONSAR-on price levels and to track the average industry price evolution through time, a decomposition of the observed annual changes in the asset based market-share-weighted average price, was presented. A critical issue to measuring and analyzing price changes is the choice of which price level indicator one uses, more specifically, whether one focuses on the long- or the short-term. This study shows that this distinction not only determines-to a large extent-the price level but also the direction of its change. I argued that price changes have been heavily influenced by the regulatory regime and that competition among PFMs occurs mainly through marketing stressing differentiation rather than through lowering prices. Surprisingly, using panel data from 1998 to 2007, flows of funds into and out of PFMs as well as transfers to and from different PFMs in Mexico, seem to be motivated by reasons other than the expected key financial decision variables like returns, volatility of returns (i.e. risk), and commission level.