Abstract

http://ssrn.com/abstract=905600
 
 

References (37)



 
 

Citations (8)



 


 



For Better or Worse? Mutual Funds in Side-By-Side Management Relationships With Hedge Funds


Gjergji Cici


College of William and Mary - Mason School of Business

Scott Gibson


College of William and Mary - Mason School of Business

Rabih Moussawi


University of Pennsylvania - The Wharton School

December 14, 2006


Abstract:     
Firms that engage in the simultaneous, or "side-by-side", management of mutual funds and hedge funds have a fiduciary duty to each fund's investors to make portfolio decisions and to execute trades in the most favorable way. This fiduciary duty is put to the test, however, when side-by-side management firms can increase fee income by strategically transferring performance from the mutual funds to the hedge funds they oversee. Our empirical evidence proves consistent with such favoritism. The reported returns of side-by-side mutual funds are significantly less than those of similar mutual funds run by firms that do not also manage hedge funds. A decomposition of reported returns into holdings-return and return-gap components and return-persistence tests also suggest favoritism. Finally, examining a potential wealth transference mechanism, we find evidence consistent with side-by-side mutual funds getting less of a contribution to performance from IPO underpricing than matched unaffiliated mutual funds.

Number of Pages in PDF File: 39

Keywords: mutual funds, hedge funds, side-by-side arrangements, institutional investors

JEL Classification: G1, G2

working papers series


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Date posted: June 1, 2006  

Suggested Citation

Cici, Gjergji and Gibson, Scott and Moussawi, Rabih, For Better or Worse? Mutual Funds in Side-By-Side Management Relationships With Hedge Funds (December 14, 2006). Available at SSRN: http://ssrn.com/abstract=905600 or http://dx.doi.org/10.2139/ssrn.905600

Contact Information

Gjergji Cici (Contact Author)
College of William and Mary - Mason School of Business ( email )
P.O. Box 8795
Williamsburg, VA 23187-8795
United States
757-221-1826 (Phone)
George Scott Gibson
College of William and Mary - Mason School of Business ( email )
P.O. Box 8795
Williamsburg, VA 23187-8795
United States
757/221-1673 (Phone)
Rabih Moussawi
University of Pennsylvania - The Wharton School ( email )
3733 Spruce Street
216 Vance Hall
Philadelphia, PA 19104-6365
United States
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