Fund Flows and Asset Valuations of Bond Mutual Funds: Effect of Side-by-Side Management

52 Pages Posted: 19 Jul 2023

See all articles by Minjae Koo

Minjae Koo

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Volkan Muslu

C.T. Bauer College of Business University of Houston

Date Written: July 3, 2023

Abstract

We compare fund flows and asset valuations of bond mutual funds whose managers concurrently manage portfolios with performance-based fees and those whose managers do not. We find that bond mutual funds whose managers concurrently manage portfolios with performance-based fees receive less fund flows and overstate their asset values. The reduction in fund flows and overstatement of fair values are amplified when these mutual funds underperform their peers. The overstatement of fair values is also amplified when these funds exhibit redemption risk. Our findings suggest that conflicts of interest associated with “side-by-side management” in mutual funds result in adverse operational and reporting outcomes besides underperformance.

Keywords: Investment Advisor, Side-by-Side Funds (SBS Funds), Bond Mutual Funds, Fund Flows, Fair Valuation

JEL Classification: G23, M41

Suggested Citation

Koo, Minjae and Muslu, Volkan, Fund Flows and Asset Valuations of Bond Mutual Funds: Effect of Side-by-Side Management (July 3, 2023). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4506409 or http://dx.doi.org/10.2139/ssrn.4506409

Minjae Koo (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Volkan Muslu

C.T. Bauer College of Business University of Houston ( email )

4750 Calhoun Road
Houston, TX 77204
United States
713 7434924 (Phone)

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