Incentives Behind Side-by-Side Management of Mutual Funds and Hedge Funds

71 Pages Posted: 10 Aug 2017

See all articles by John Bae

John Bae

Elon University - Love School of Business

Chengdong Yin

Purdue University - Krannert School of Management

Date Written: July 14, 2017

Abstract

We examine the incentives that motivate management firms to simultaneously manage mutual funds and hedge funds. By identifying side-by-side management at both the management firm level and the manager level, we find that mutual fund management firms use side-by-side management to retain their talented managers and improve capital flows into their mutual funds. In contrast, hedge fund management firms engage in the side-by-side practice to collect more fees and smooth their compensation over time. The conflict of interest is more likely to exist when hedge fund managers establish mutual funds, and thus investors do not necessarily suffer from side-by-side management.

Keywords: Side-by-Side Management, Mutual Fund, Hedge Fund, Incentive

JEL Classification: G23

Suggested Citation

Bae, John and Yin, Chengdong, Incentives Behind Side-by-Side Management of Mutual Funds and Hedge Funds (July 14, 2017). Available at SSRN: https://ssrn.com/abstract=3015830 or http://dx.doi.org/10.2139/ssrn.3015830

John Bae

Elon University - Love School of Business ( email )

Elon, NC 27244
United States

Chengdong Yin (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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