Mutual Fund Performance and Manager Assets: The Negative Effect of Outside Holdings

47 Pages Posted: 27 Nov 2016 Last revised: 20 Jul 2020

See all articles by Richard B. Evans

Richard B. Evans

University of Virginia - Darden School of Business

Javier Gil-Bazo

Universitat Pompeu Fabra; Barcelona Graduate School of Economics (Barcelona GSE)

Marc L. Lipson

University of Virginia - Darden School of Business

Date Written: July 18, 2020

Abstract

We explore the relation between fund performance and the assets managed by the fund’s managers that are outside the fund. Controlling for fund size, we find a negative relation between fund performance and the size of the manager’s outside holdings, the number of other funds managed, and the number of distinct fund categories managed. The economic magnitude of the effect is comparable to that of fund family size and turnover, though not as large as that of fund size. Additional results suggest the effect is related to manager attention: the performance effect is driven by outside holdings that do not overlap with those held within the fund; in stark contrast to fund size, the incremental effect of additional outside holdings is non-monotonic; and outside holdings in sub-advised funds have little effect on performance. We address endogeneity concerns in two ways: using fund mergers as an instrument for manager holdings and using recursive demeaning. Our results suggest that manager responsibilities outside a fund are a significant determinant of fund performance and that limited manager attention plays a key role in this effect.

Keywords: mutual fund managers; diseconomies of scale; outside holdings; attention; price impact.

JEL Classification: G23

Suggested Citation

Evans, Richard B. and Gil-Bazo, Javier and Lipson, Marc Lars, Mutual Fund Performance and Manager Assets: The Negative Effect of Outside Holdings (July 18, 2020). Darden Business School Working Paper No. 2874975, Available at SSRN: https://ssrn.com/abstract=2874975 or http://dx.doi.org/10.2139/ssrn.2874975

Richard B. Evans

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)

HOME PAGE: http://faculty.darden.virginia.edu/evansr/

Javier Gil-Bazo (Contact Author)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Marc Lars Lipson

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4837 (Phone)
434-243-5021 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lipson.htm

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