Costs and Benefits of Financial Conglomerate Affiliation: Evidence from Hedge Funds

74 Pages Posted: 1 Jan 2016 Last revised: 5 Sep 2018

See all articles by Francesco A. Franzoni

Francesco A. Franzoni

USI Lugano; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: August 3, 2018

Abstract

This paper explores how affiliation to financial conglomerates affects asset managers’ access to capital, trading behavior, and performance. Focusing on a sample of hedge funds, we find that financial-conglomerate-affiliated hedge funds (FCAHFs) have lower flow-performance sensitivity than other hedge funds and that this difference is particularly pronounced during financial turmoil. Arguably, thanks to more stable funding, FCAHFs allow their investors to redeem capital more freely and are able to capture price rebounds. Since investors may value these characteristics, our findings provide a rationale for why financial conglomerate affiliation is widespread, although it slightly hampers performance on average.

Keywords: Hedge Funds, Financial Conglomerates, Risk Taking

JEL Classification: G2

Suggested Citation

Franzoni, Francesco A. and Giannetti, Mariassunta, Costs and Benefits of Financial Conglomerate Affiliation: Evidence from Hedge Funds (August 3, 2018). Swiss Finance Institute Research Paper No. 15-68; Swedish House of Finance Research Paper No. 17-7; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 506/2017; Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2709565 or http://dx.doi.org/10.2139/ssrn.2709565

Francesco A. Franzoni

USI Lugano ( email )

Via G. Buffi 13
Lugano, 6904
Switzerland

Swiss Finance Institute

Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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