Crowding: Evidence from Fund Managerial Structure

50 Pages Posted: 9 Apr 2020

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: March 15, 2020

Abstract

Over the past 30 years, there has been a striking evolution in fund management structure with team-managed funds growing from 30% of funds to over 70% today. While much attention is focused on fund performance, our paper presents evidence that this transformation is likely a response to crowding: adding new managers brings fresh investment ideas meaning any particular idea is less likely to be crowded. Our results show that funds that transition from solo 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 that the performance of managers that employ systematic investment processes are not as sensitive to inflows suggesting that 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 (March 15, 2020). 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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