Asset Management and Investment Banking

46 Pages Posted: 15 Feb 2013 Last revised: 14 May 2014

See all articles by Janis Berzins

Janis Berzins

BI Norwegian Business School

Crocker Herbert Liu

Cornell University - School of Hotel Administration

Charles Trzcinka

Indiana University - Kelley School of Business - Department of Finance

Date Written: April 26, 2013

Abstract

We find evidence that conflicts of interest are pervasive in the asset management business owned by investment banks. Using data from 1990 to 2008, we compare the alphas of mutual funds, hedge funds and institutional funds operated by investment banks and non-bank conglomerates. We find that while there is no difference in performance by fund type but being owned by an investment bank reduces alphas by 46 basis points per year in our baseline model. Making lead loans increases alphas but the dispersion of fees across portfolios decreases alphas. The economic loss is $4.9 billion per year.

Keywords: investment bank, Institutional funds, hedge funds, mutual funds, performance evaluation

JEL Classification: G2, G1, L1, L2

Suggested Citation

Berzins, Janis and Liu, Crocker Herbert and Trzcinka, Charles, Asset Management and Investment Banking (April 26, 2013). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2217700

Janis Berzins

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Crocker Herbert Liu

Cornell University - School of Hotel Administration ( email )

435B Statler Hall
Ithaca, NY 14853-6902
United States

Charles Trzcinka (Contact Author)

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

Kelley School of Business
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-9908 (Phone)
812-855-5875 (Fax)

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