Side-by-Side Management of Hedge Funds and Mutual Funds

58 Pages Posted: 4 Dec 2009 Last revised: 8 Dec 2009

Tom Nohel

Loyola University of Chicago

Zhi Jay Wang

University of Oregon - Charles H. Lundquist School of Business

Lu Zheng

University of California, Irvine - Paul Merage School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: December 2, 2009

Abstract

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.

Keywords: Hedge Funds, Mutual Funds, Conflicts of Interest

JEL Classification: G18, G20

Suggested Citation

Nohel, Tom and Wang, Zhi Jay and Zheng, Lu, Side-by-Side Management of Hedge Funds and Mutual Funds (December 2, 2009). Available at SSRN: https://ssrn.com/abstract=1516965 or http://dx.doi.org/10.2139/ssrn.1516965

Tom Nohel

Loyola University of Chicago ( email )

820 North Michigan Avenue
Chicago, IL 60611
United States
312-915-7065 (Phone)
312-915-8508 (Fax)

Zhi Jay Wang (Contact Author)

University of Oregon - Charles H. Lundquist School of Business ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States

Lu Zheng

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States
9498248365 (Phone)

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