An investigation of the role of trust in the relationship between pension fund trustees and investment managers: an Indonesian case study

This thesis explores the role of trust in the relationship between Indonesian pension fund tmstees and the investment managers they hire as financial intermediaries by focusing on two important aspects of relationship: (i) the key factors or characteristics of trastworthiness in an investment manager which are important from the tmstee's perspective, and (ii) the key activities performed by both the trustee and the investment manager for building their trust relationship. Two theoretical models are used as a guide for exploring the relationship between trastee and investment manager. These are: (i) the model of trast developed by Mayer, Davis, and Schoorman (1995) and (ii) a model of the stages of trast development proposed by Lewicki and Bunker (1996). A case study approach is used to gather and analyse data. The pimary data is collected from in-depth interviews with 11 trustees from separate pension funds and 11 investment managers from different firms. The interview data are then summarised and analysed through the pattern coding technique proposed by Miles and Huberman (1994). The pattern matching technique is then used to compare the resultant categories of factors and activities to the suggested theoretical patterns. The major research findings of this study are: (i) the key factor of trustworthiness of an Indonesian investment manager are: ability, benevolence, integrity, and openness in communication, and (ii) communication links represent an additional key activity for building an early relationship. These findings support the following conclusions: (i) trust is an important component of the relationship between trustee and investment manager, (ii) the degree of trustee in an investment manager is determined by the degree of his/her trustworthiness, and (iii) the trast relationship between trustee and investment manager develops gradually over time and appears to pass through distinct, progressive stages. The theoretical contributions of this study include: (i) adding tmst as an important component in the relationship between trastee and an investment manager, (ii) adding another key factor that influences the degree of trastworthiness of an investment manager from the trustee's perspective, (iii) proposing a modified model that may significantiy contribute to an understanding of the role of taist in the formation and development of mutually beneficial, stable relationships between pension fund trastees and investment managers in the Indonesian financial market context. Several limitations to the study are acknowledged. The study focuses on only one type of institutional investors. Moreover, the researcher could not observe the actual relational dynamics between the trastee and the investment manager. But had to rely on the perceptions of that relationship as expressed in interview data and through supporting evidence. The study also suggests some fraitful areas for further investigation into the modeling and other aspects of the role of trust in this important relational area between trastees and investment managers within the explosive growth of pension fund investment activity in Indonesian financial markets in general, and on the Jakarta Stock Exchange in particular.