Data Envelopment Analysis (DEA) is a powerful
analytical tool that is considered as one of the most useful techniques to
measure the efficiency of Decision Making Units (DMUs) in certain industry
segments. However, there is a scarcity of reported use to assess pension funds’ performance due to the complexities of
such funds. The few papers that can be found in literature do not consider the
main characteristics of pension funds such as uncontrollable variables for managers, regulations, and funds’ status
(fully funded/underfunded pension
plans). Regulations affect such investment vehicles in many ways from
investment strategy, tax status, reporting requirements and others. Also, as
the by-product of our past research in this field the authors ran into some
unexpected outcomes where some funds had achieved an extremely low efficiency score. This is very highly unusual and
invited additional research. There are very few papers in the literature
on extremely low efficiency scores, and there is a paucity of cogent
explanations on why this is the case. Therefore, while evaluating the pension
funds’ performance through DEA we worked on this problem in some detail to
uncover the reason(s) for such low minimum efficiency scores for pension funds.
We found that the presence of very low efficiency scores phenomena is not
uncommon in pension funds industry but is in other industry studies.
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