Does Mutual Fund Family Size Matter? International Evidence

Abstract

We use data from 33 countries to study how a fund’s affiliation with large families is shaping the flow–performance relationship internationally. Our results show that family size affects the response of fund flows to performance differently depending on the sophistication of the investors. While less sophisticated investors are persuaded by the greater visibility and the strategies of funds affiliated with large and established families, more sophisticated investors are not. Affiliation with a large family increases the convexity of the flow–performance relationship in countries where investors are less sophisticated, but it decreases the convexity of the flow–performance relationship in countries with more sophisticated investors. These results are important for investors, mutual fund companies and regulators as the flow–performance sensitivity determines the assets under management, the level of fees and risk–taking, and the performance of the fund.

Keywords: Mutual funds, Flow-performance relationship, Fund family size, Investor sophistication

JEL Classification: G15, G23