Keep It in the Family: How Passive Funds Are Used to Bolster Active Funds’ Performance

62 Pages Posted: 16 Apr 2020 Last revised: 18 Jun 2020

Date Written: March 19, 2020

Abstract

The same fund family may sponsor both passive and active funds. Due to the funds' different fee structures and flow sensitivity to performance, this may create conflicts of interest at the fund family level. Using portfolio firms’ mergers and acquisitions as a laboratory, I show that fund families actively take measures to improve the performance of their active funds by using their passive funds. When the family’s active funds have a large stake in the acquirer, passive fund owners of the target are less likely to support takeover deals that benefit target shareholders. At the deal level, I do not find evidence that takeover premia are affected by passive funds' voting. Consistent with the argument that family profit motives drive fund performance, I observe differences in the flow-to-performance sensitivity between active and passive funds. The evidence suggests that fund families may take measures to boost their active funds’ performance at the expense of their passive funds.

Keywords: mutual fund voting, corporate control, fund family conflicts

JEL Classification: G23, G30, G34

Suggested Citation

Allegrucci, Alberto, Keep It in the Family: How Passive Funds Are Used to Bolster Active Funds’ Performance (March 19, 2020). Available at SSRN: https://ssrn.com/abstract=3559501 or http://dx.doi.org/10.2139/ssrn.3559501

Alberto Allegrucci (Contact Author)

S&P Global ( email )

20 Canada Square
Canary Wharf
London, E14 5LH
United Kingdom

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