Asset Management and Investment Banking
46 Pages Posted: 15 Feb 2013 Last revised: 14 May 2014
Date Written: April 26, 2013
Abstract
We find evidence that conflicts of interest are pervasive in the asset management business owned by investment banks. Using data from 1990 to 2008, we compare the alphas of mutual funds, hedge funds and institutional funds operated by investment banks and non-bank conglomerates. We find that while there is no difference in performance by fund type but being owned by an investment bank reduces alphas by 46 basis points per year in our baseline model. Making lead loans increases alphas but the dispersion of fees across portfolios decreases alphas. The economic loss is $4.9 billion per year.
Keywords: investment bank, Institutional funds, hedge funds, mutual funds, performance evaluation
JEL Classification: G2, G1, L1, L2
Suggested Citation: Suggested Citation
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