Leading the Way? External Lead Managers and the Performance of Institutional Equity Funds
55 Pages Posted: 5 Jun 2017 Last revised: 21 Apr 2018
Date Written: February 22, 2018
Institutional sponsors increasingly seek outside help in fund selection and capital allocation by delegating these decisions to external lead managers. Whether these intermediaries improve performance, however, are yet to be examined. We fill this gap with a unique dataset of Korean public sponsors that enables a detailed comparison of domestic equity funds selected by the sponsors and external lead managers, respectively. We find that lead managers enhance performance by (i) optimizing capital allocation and (ii) selecting more skilled end-level managers. Further evidence suggests this performance improvement primarily emanates from their ability to detach themselves from the sponsors’ internal organizational issues.
Keywords: Delegated portfolio management, institutional investors, intermediated investment management, outsourced CIO, investment pool
JEL Classification: G11, G20, G23
Suggested Citation: Suggested Citation