Active and Passive Investing

Which End-Investors Are More Likely to Earn High Active Returns? Large institutional investors have outperformed historically As shown previously, institutional equity investments have earned higher active returns than mutual funds Again, the caveat is that reporting biases may be more pronounced for them ● Among institutional e quity managers, larger institutions have historically performed better Dyck and Pomorski (2011) show this for North American pension funds, endowments, and other investor groups Large investors' edge partly reflects their ability to achieve lower fees from external managers more alpha ● (AOR less alpha Source: AQR, twenty bridge.com. For illustrative purposes only. Large institutions by AUM; CEM database has 841 separate plans that are skewed towards the largest plans that have the resources and incentives to pay for the benchmarking service, for example including in 2007 57 of the top 100 plans in the U.S. See previous slide for further details. The use of the logos and pictures is for informational purposes only and is not authorized by, s/635r associated with the trademark owners. Please read important disclosures in the Appendix. S 10

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