Conflicting Family Values in Mutual Fund Families
64 Pages Posted: 2 Apr 2012
Date Written: March 31, 2012
We analyze the investment behavior of affiliated funds of mutual funds (AFoMFs), which are mutual funds that can only invest in other funds in the family, and are offered by most large families. Though never mentioned in any prospectus, we discover that AFoMFs provide an insurance pool against temporary liquidity shocks to other funds in the family. We show that though the family benefits because funds can avoid fire-sales, the cost of this insurance is borne by the investors in the AFoMFs. The paper thus uncovers some of the hidden complexities of fiduciary responsibility in mutual fund families.
Keywords: mutual fund family, fund of funds, internal capital market, conflict of interest, fiduciary responsibility
JEL Classification: G23
Suggested Citation: Suggested Citation