Side-by-Side Management of Hedge Funds and Mutual Funds
Loyola University of Chicago
Zhi Jay Wang
University of Oregon - Charles H. Lundquist School of Business
University of California, Irvine - Paul Merage School of Business
December 2, 2009
We examine situations where the same fund manager simultaneously manages mutual funds and hedge funds. We refer to this as side-by-side management. We document 344 such cases involving 693 mutual funds and 538 hedge funds. Proponents of this practice argue that it is essential to hire and retain star performers. Detractors argue that the temptation for abuse is high and the practice should be banned. Our analysis based on various performance metrics shows that side-by-side mutual fund managers significantly outperform peer funds, consistent with this privilege being granted primarily to star performers. Interestingly, side-by-side hedge fund managers are at best on par with their style category peers, casting further doubt on the idea that conflicts of interest undermine mutual fund investors. Thus, we find no evidence of welfare loss for mutual fund investors due to exploitation of conflicts of interest.
Number of Pages in PDF File: 58
Keywords: Hedge Funds, Mutual Funds, Conflicts of Interest
JEL Classification: G18, G20
Date posted: December 4, 2009 ; Last revised: December 8, 2009
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