Efficiency of the strategic style of pension funds: an application of the variants of the slacks-based measure in DEA

A 2010 paper by Kaoru Tone proposes four variants of the slacks‐based measure of efficiency (SBM) to overcome the limitations of this well‐known Data Envelopment Analysis (DEA) approach when the reference points of the efficient frontier may not be adequate. In this study, we apply these variants for the first time to a real‐world problem to evaluate the efficiency of one of the most relevant decisions in pension fund management: The strategic asset allocation. The results highlight the relevance of SBM Variation III, which considers clusters of portfolios with similar characteristics, to appropriately identify the reference set of each portfolio. Therefore, this variant allows for the identification of locally efficient but globally inefficient portfolios. Our results also reject the notion of a positive relation between management resources and efficiency of the strategic investment style.