Playing Favorites: Conflicts of Interest in Mutual Fund Management

53 Pages Posted: 4 May 2016 Last revised: 10 Jun 2017

See all articles by Diane Del Guercio

Diane Del Guercio

University of Oregon, Lundquist College of Business; European Corporate Governance Institute (ECGI)

Egemen Genc

University of Illinois at Chicago

Hai Tran

Loyola Marymount University - Department of Finance

Date Written: March 23, 2017

Abstract

We examine the performance of mutual funds whose managers simultaneously manage portfolios with performance-based incentive fees for three account types: mutual funds, hedge funds, and separate accounts. Importantly, our dataset is free of selection bias because it is hand collected from mandatory SEC filings. We find that only funds whose managers also manage hedge funds significantly underperform peer mutual funds. Moreover, underperformance begins only after fund managers begin to manage a hedge fund. We find that managerial incentives and opportunities for cross-subsidization explain variation in underperformance across funds, supporting the conflicts of interest hypothesis in the debate on “side-by-side management.”

Keywords: side-by-side management, conflicts of interest, mutual fund performance, favoritism, hedge funds

JEL Classification: G10, G14, G20, G23

Suggested Citation

Del Guercio, Diane and Genc, Egemen and Tran, Hai, Playing Favorites: Conflicts of Interest in Mutual Fund Management (March 23, 2017). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2774273 or http://dx.doi.org/10.2139/ssrn.2774273

Diane Del Guercio (Contact Author)

University of Oregon, Lundquist College of Business ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-5179 (Phone)
541-346-3341 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Egemen Genc

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Hai Tran

Loyola Marymount University - Department of Finance ( email )

Los Angeles, CA 90045
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
493
Abstract Views
2,937
rank
71,785
PlumX Metrics