Fund Flow Diversification: Implications for Asset Stability, Fee-Setting and Performance

70 Pages Posted: 2 Apr 2019

See all articles by Lorenzo Casavecchia

Lorenzo Casavecchia

University of Technology Sydney

Byoung Uk Kang

The Hong Kong Polytechnic University - School of Accounting and Finance

Ashish Tiwari

University of Iowa

Date Written: March 4, 2019

Abstract

We provide new evidence on the economic benefits to mutual fund families from having a portfolio of funds with diversified investor fund flows. We show that diversified fund families enjoy greater stability of assets under management, and experience significantly lower net cash outflows during an economic downturn. Given concave advisory fee schedules, the dominant industry fee structure, a reduction in asset volatility is potentially advantageous for family-level fee revenues. Consistent with this notion, we show that fund families with more diversified fund flows are able to strategically charge more competitive advisory fees across their funds. Our findings suggest that the diversification of fund families’ asset flows is an important source of net performance gains for fund shareholders. These gains arise mostly in the more competitive industry segments.

Keywords: Fund Flow Diversification, Advisory Fees, Asset Volatility, Fund Family Performance

JEL Classification: G23

Suggested Citation

Casavecchia, Lorenzo and Kang, Byoung Uk and Tiwari, Ashish, Fund Flow Diversification: Implications for Asset Stability, Fee-Setting and Performance (March 4, 2019). Available at SSRN: https://ssrn.com/abstract=3350171 or http://dx.doi.org/10.2139/ssrn.3350171

Lorenzo Casavecchia

University of Technology Sydney ( email )

8 Ultimo Rd
Sydney, NSW 2007
Australia

Byoung Uk Kang

The Hong Kong Polytechnic University - School of Accounting and Finance ( email )

School of Accounting and Finance
The Hong Kong Polytechnic University
Hung Hom, Kowloon
Hong Kong
852-2766-7085 (Phone)

HOME PAGE: http://af.polyu.edu.hk/people/academic-staff/dr-byoung-uk-kang/

Ashish Tiwari (Contact Author)

University of Iowa ( email )

Finance Department
Henry B. Tippie College of Business, 108 PBB
Iowa City, IA 52242
United States
(319) 353-2185 (Phone)
(319) 335-3690 (Fax)

HOME PAGE: https://tippie.uiowa.edu/people/ashish-tiwari

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