Mutual Fund Performance When Parent Firms Simultaneously Manage Hedge Funds

42 Pages Posted: 24 Dec 2009

See all articles by Gjergji Cici

Gjergji Cici

University of Kansas - School of Business

Scott Gibson

College of William and Mary - Mason School of Business

Rabih Moussawi

Villanova University - Department of Finance; University of Pennsylvania - The Wharton School

Date Written: June 9, 2009

Abstract

This study examines the performance of mutual funds managed by firms that simultaneously manage hedge funds. We find that the reported returns of mutual funds in these “side-by-side” associations with hedge funds significantly underperformed those of mutual funds that shared similar fund and family characteristics but differed in that they were not affiliated with hedge funds. Digging deeper into performance, we find that the underperformance was confined to return gaps, a return measure that captures the impact of unobservable managerial actions. Interestingly, mutual funds with investment styles that were most closely aligned to affiliated hedge funds generated reported-return alphas and return gaps that underperformed by the greatest amount. Finally, we find that side-by-side mutual funds received less of a contribution to performance from IPO underpricing than similar unaffiliated mutual funds or affiliated hedge funds. Evidence does not support the hypothesis that affiliations with hedge funds allow side-by-side mutual funds to attract superior stock-picking talent. Our evidence does not allow us to rule out the possibility that management firms maximized fee income by strategically transferring performance from mutual funds to hedge funds.

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

JEL Classification: G1, G2

Suggested Citation

Cici, Gjergji and Gibson, George Scott and Moussawi, Rabih, Mutual Fund Performance When Parent Firms Simultaneously Manage Hedge Funds (June 9, 2009). Journal of Financial Intermediation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1526737

Gjergji Cici (Contact Author)

University of Kansas - School of Business ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
785-864-3873 (Phone)

HOME PAGE: http://business.ku.edu/gjergji-cici

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

Villanova University - Department of Finance ( email )

800 E Lancaster Ave
Bartley Hall, 2051
Villanova, PA 19085
United States

HOME PAGE: http://www.homepage.villanova.edu/rabih.moussawi

University of Pennsylvania - The Wharton School ( email )

United States

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