Favoritism in Mutual Fund Families? Evidence on Strategic Cross-Fund Subsidization

39 Pages Posted: 18 Jun 2004

See all articles by Jose-Miguel Gaspar

Jose-Miguel Gaspar

ESSEC Business School

Massimo Massa

INSEAD - Finance

Pedro Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: March 2004

Abstract

We investigate whether mutual fund families strategically allocate performance across their member funds favoring those more likely to generate higher fee income or future inflows. We find evidence of strategic cross-fund subsidization of 'high family value' funds (i.e. high fees or high past performers) at the expense of 'low value' funds in the order of 6 to 28 basis points of extra net-of-style performance per month, depending on the criteria. This overperformance is above the one that would exist between similar funds not part of the same fund family. We further document how this family strategy takes place by looking at preferential allocation of IPO deals and at the amount of opposite trades among 'high' and 'low value' funds belonging to the same fund complex (a practice that can encompass 'cross-trading'). Our findings complement the existing literature on distortions in delegated asset management by highlighting the role played by family affiliation. They are also relevant to the regulatory debate concerning 'cross-trading' between funds under common management.

Keywords: mutual funds, mutual fund families, family strategies, cross-trading, subsidization

JEL Classification: G23, G10

Suggested Citation

Gaspar, Jose-Miguel and Massa, Massimo and Matos, Pedro, Favoritism in Mutual Fund Families? Evidence on Strategic Cross-Fund Subsidization (March 2004). AFA 2005 Philadelphia Meetings; EFA 2004 Maastricht Meetings Paper No. 4238. Available at SSRN: https://ssrn.com/abstract=557078 or http://dx.doi.org/10.2139/ssrn.557078

Jose-Miguel Gaspar

ESSEC Business School ( email )

Avenue Bernard Hirsch
Cergy-Pontoise, 95021
France
+33 1 3443 3374 (Phone)
+33 1 3443 3212 (Fax)

HOME PAGE: http://www.essec.edu

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Pedro Matos (Contact Author)

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434 243 8998 (Phone)
434 924 0726 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty-research/directory/pedro-matos/

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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