Why is there so much side-by-side management in the ETF industry?

67 Pages Posted: 22 Jul 2021

See all articles by Mancy Luo

Mancy Luo

Erasmus University

David Schumacher

McGill University

Date Written: July 20, 2021

Abstract

We document the dramatic rise of side-by-side management (“SbS”) in the global ETF industry. As of 2018, around 60% of individual ETF fund managers manage mutual funds in a SbS arrangement, most of which are “active” mutual funds. We argue that mutual fund firms employ SbS arrangements to exploit institutional client relationships of their mutual fund managers to help channel mutual fund TNA at risk of withdrawal to the firms’ new ETF business. Mutual fund managers are most likely to become SbS ETF managers if they generate revenue from institutional TNA and face strong ETF competition. SbS initiations lead to discretionary institutional (but not retail) outflows from mutual funds and contemporaneous inflows in the ETFs overseen by those
same SbS managers. Client level holdings tests link these flows to those institutional clients with likely stronger relationship to the SbS managers, suggesting that SbS arrangements are an important tool for traditional mutual fund firms to meet and manage the rise of ETFs.

Keywords: ETF managers, mutual fund managers, side-by-side management, flows.

JEL Classification: G23

Suggested Citation

Luo, Mancy and Schumacher, David, Why is there so much side-by-side management in the ETF industry? (July 20, 2021). Available at SSRN: https://ssrn.com/abstract=3890147 or http://dx.doi.org/10.2139/ssrn.3890147

Mancy Luo

Erasmus University ( email )

Burgemeester Oudlaan 50,
Mandeville Building, Room T08-47,
Rotterdam, 3062PA
Netherlands

HOME PAGE: http://sites.google.com/site/mancyluofinance/

David Schumacher (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
5143984778 (Phone)

HOME PAGE: http://www.davidschumacher.info

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