Conflicting Family Values in Mutual Fund Families

64 Pages Posted: 2 Apr 2012  

Utpal Bhattacharya

Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management

Jung Hoon Lee

Tulane University - A.B. Freeman School of Business

Veronika Krepely Pool

Indiana University - Kelley School of Business - Department of Finance

Multiple version iconThere 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

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

Utpal Bhattacharya (Contact Author)

Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management ( email )

Clear Water Bay
Kowloon
Hong Kong

Jung Hoon Lee

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Veronika Krepely Pool

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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