Crowding: Evidence from Fund Managerial Structure

60 Pages Posted: 9 Apr 2020 Last revised: 10 Apr 2021

See all articles by Campbell R. Harvey

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Yan Liu

Purdue University

Eric K. M. Tan

University of Queensland - Business School

Min Zhu

University of Queensland

Date Written: April 9, 2021

Abstract

Over the past 30 years, a striking evolution in fund management structure has taken place, with the proportion of team-managed funds growing from 33% to over 70%. While many focus on the potential link to declining fund performance, our paper presents evidence that the shift to team management is likely a response to crowding: adding new managers brings fresh investment ideas which implies that any individual idea is less crowded. Our results show that funds that transition to team management have less concentrated portfolios and lower decreasing returns to scale. Consistent with the crowding of ideas, we show that diversification of team skills is important for reducing the impact of fund size on performance. We also find the performance of managers who employ systematic investment processes is not as sensitive to inflows, suggesting discretionary managers with a limited number of ideas are more likely to run into capacity constraints.

Keywords: Mutual funds, managerial structure, diseconomies of scale, crowding, performance evaluation, decreasing returns to scale, alpha, capacity constraints, discretionary management, systematic management.

JEL Classification: G11, G12, G14, G23, L22, L2

Suggested Citation

Harvey, Campbell R. and Liu, Yan and Tan, Eric K. M. and Zhu, Min, Crowding: Evidence from Fund Managerial Structure (April 9, 2021). Available at SSRN: https://ssrn.com/abstract=3554636 or http://dx.doi.org/10.2139/ssrn.3554636

Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yan Liu (Contact Author)

Purdue University ( email )

West Lafayette, IN 47907-1310
United States

HOME PAGE: http://yliu1.com

Eric K. M. Tan

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Min Zhu

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

HOME PAGE: http://https://www.business.uq.edu.au/staff/min-zhu

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