Competition and cooperation in mutual fund families

Research output: Working paper

Abstract

Using fund compensation disclosure and measures of intra-family manager cooperation, we create an index of competitive and cooperative incentives within a fund family. We find evidence consistent with a separating equilibrium, where some fund families encourage cooperation among their managers, while other fund families encourage competition. Consistent with those incentives, the managers of competitive advisors have higher average performance and a higher fraction of "star" funds, but higher variation in performance among funds as well. Families with more cooperative incentives they are more likely to engage in cross-subsidization through cross-holding and cross-trading. In families with net cooperative incentives are also more likely to recapture outflows, and for publicly traded advisors, exhibit lower cash flow and firm stock return volatility. In examining the strategic choice between cooperative and competitive incentives, clientele plays an important role. While competitive families are more likely to manage institutional money, cooperative families are more likely to have their fund offerings marketed through a broker-distribution channel, consistent with investor demand for non-performance related characteristics.
Original languageEnglish
Publication statusSubmitted - 15 Jun 2017

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Mutual funds
Cooperation and competition
Incentives
Managers
Advisors
Fund performance
Cross-holdings
Distribution channels
Strategic choice
Broker
Stock return volatility
Clientele
Disclosure
Cash flow
Separating equilibrium
Cross-subsidization
Investors

Keywords

  • Mutual fund
  • manager
  • compensation
  • incentives
  • competition
  • cooperation
  • cross-holding
  • performance
  • cross-subsidization
  • internal capital markets

Cite this

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title = "Competition and cooperation in mutual fund families",
abstract = "Using fund compensation disclosure and measures of intra-family manager cooperation, we create an index of competitive and cooperative incentives within a fund family. We find evidence consistent with a separating equilibrium, where some fund families encourage cooperation among their managers, while other fund families encourage competition. Consistent with those incentives, the managers of competitive advisors have higher average performance and a higher fraction of {"}star{"} funds, but higher variation in performance among funds as well. Families with more cooperative incentives they are more likely to engage in cross-subsidization through cross-holding and cross-trading. In families with net cooperative incentives are also more likely to recapture outflows, and for publicly traded advisors, exhibit lower cash flow and firm stock return volatility. In examining the strategic choice between cooperative and competitive incentives, clientele plays an important role. While competitive families are more likely to manage institutional money, cooperative families are more likely to have their fund offerings marketed through a broker-distribution channel, consistent with investor demand for non-performance related characteristics.",
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AU - Prado, Melissa Porras

AU - Galacho, Rafael Zambrana

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N2 - Using fund compensation disclosure and measures of intra-family manager cooperation, we create an index of competitive and cooperative incentives within a fund family. We find evidence consistent with a separating equilibrium, where some fund families encourage cooperation among their managers, while other fund families encourage competition. Consistent with those incentives, the managers of competitive advisors have higher average performance and a higher fraction of "star" funds, but higher variation in performance among funds as well. Families with more cooperative incentives they are more likely to engage in cross-subsidization through cross-holding and cross-trading. In families with net cooperative incentives are also more likely to recapture outflows, and for publicly traded advisors, exhibit lower cash flow and firm stock return volatility. In examining the strategic choice between cooperative and competitive incentives, clientele plays an important role. While competitive families are more likely to manage institutional money, cooperative families are more likely to have their fund offerings marketed through a broker-distribution channel, consistent with investor demand for non-performance related characteristics.

AB - Using fund compensation disclosure and measures of intra-family manager cooperation, we create an index of competitive and cooperative incentives within a fund family. We find evidence consistent with a separating equilibrium, where some fund families encourage cooperation among their managers, while other fund families encourage competition. Consistent with those incentives, the managers of competitive advisors have higher average performance and a higher fraction of "star" funds, but higher variation in performance among funds as well. Families with more cooperative incentives they are more likely to engage in cross-subsidization through cross-holding and cross-trading. In families with net cooperative incentives are also more likely to recapture outflows, and for publicly traded advisors, exhibit lower cash flow and firm stock return volatility. In examining the strategic choice between cooperative and competitive incentives, clientele plays an important role. While competitive families are more likely to manage institutional money, cooperative families are more likely to have their fund offerings marketed through a broker-distribution channel, consistent with investor demand for non-performance related characteristics.

KW - Mutual fund

KW - manager

KW - compensation

KW - incentives

KW - competition

KW - cooperation

KW - cross-holding

KW - performance

KW - cross-subsidization

KW - internal capital markets

M3 - Working paper

BT - Competition and cooperation in mutual fund families

ER -