Conflicting Family Values in Mutual Fund Families

Bhattacharya , Utpal; Lee, Jung Hoon; Pool, Veronika Krepely

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Conflicting Family Values in Mutual Fund Families

Journal of Finance, Forthcoming

64 Pages Posted: 2 Apr 2012

See all articles by Utpal Bhattacharya

Jung Hoon Lee

Office of Financial Research, US Department of the Treasury

Veronika Krepely Pool

Vanderbilt University - Finance

There are 2 versions of this paper

Date Written: March 31, 2012

Abstract

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

Bhattacharya, Utpal and Lee, Jung Hoon and Pool, Veronika Krepely, Conflicting Family Values in Mutual Fund Families (March 31, 2012). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2032203