Mutual Fund Incubation

66 Pages Posted: 27 Mar 2008 Last revised: 18 Aug 2009

See all articles by Richard B. Evans

Richard B. Evans

University of Virginia - Darden School of Business

Date Written: March 21, 2009


Incubation is a strategy for initiating new funds, where multiple funds are started privately, and, at the end of an evaluation period, some are opened to the public. Consistent with incubation being used by fund families to increase performance and attract flows, funds in incubation outperform non-incubated funds by 3.5% risk-adjusted, and when they are opened to the public, they attract higher net dollar flows. Post-incubation, however, this outperformance disappears. This performance reversal imparts an upwards bias to returns that is not removed by a fund size filter. Fund age and ticker-creation-date filters, however, eliminate the bias.

Keywords: Mutual fund incubation, investment management, bias in returns, fund flows, fund family

JEL Classification: G11, G20

Suggested Citation

Evans, Richard B., Mutual Fund Incubation (March 21, 2009). Journal of Finance, Forthcoming, Available at SSRN:

Richard B. Evans (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)


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