A study criticizing manager compensation and the performance of labour-sponsored investment funds in Canada has won a $10,000 prize for excellence in Canadian capital market research.
The winning paper, entitled Incentive Fees, Valuation and Performance of Labour Sponsored Investment Funds, was written by Scott Anderson, an associate professor of finance at the School of Business Management, Ryerson University in Toronto; and Yisong S. Tian, an associate professor of finance at the Schulich School of Business, York University in Toronto. The contest was sponsored by Barclays Global Investors Canada Ltd.
The authors conclude that, despite the 30% tax credit received by investors, most LSIFs will probably be inferior to alternative investments such as mutual funds. Specific findings of the paper:
- LSIFs have underperformed other investment funds and market indices;
- manager compensation is probably the major factor behind the poor performance
- fees charged by LSIFs are substantially higher than by other investment funds and several elements of the fee structure are not in the best interests of investors; and
- the total cost of combined management and incentive fees far exceeds the benefit of the tax credit for most LSIFs.
This is third year the prize, the Barclays Global Investors Canada Ltd. Research Award, has been awarded. The winner is determined by a panel of independent judges selected by the Canadian Investment Review.