Separate Account vs Mutual Fund Investors: Manager Selection and Performance

Abstract

Separate account investors outperform category-matched mutual fund investors yearly by 14─24 bps gross and 50─75 bps net. This outperformance is entirely explained by structural and reporting differences between the vehicles and by size differences between investors. Controlling for the average outperformance of separate accounts over their mutual fund twins, separate account investors perform at the same level as mutual fund investors, gross of fees, and slightly below them, net. Separate account investors choose products that, once adjusted, are more expensive than those chosen by mutual fund investors. Their fixed income picks do better whereas their equity picks do worse.

Keywords: Separate accounts, Mutual funds, Investment vehicles, Investor performance

JEL Classification: G11, G20, G23