Team Management and Mutual Funds

Abstract

In recent years, team management has become increasingly popular in the mutual fund industry. In this paper, we analyze team management along three broad dimensions. First, we examine potential determinants explaining a fund's management structure. Second, we analyze potential effects of fund management structure on managerial behavior. Third, we address the consequences of team management on fund performance, performance persistence, and fund inflows. Findings show that the management choice is a strategic decision, made usually uniformly for all funds at the fund family level. In particular the extent and complexity of the tasks fund managers face determine management structure, with more teams in segments that require expertise in different fields. Regarding the effects of team management, we find that the management behavior of teams and individual managers differ systematically. Funds managed by teams exhibit significantly lower (unsystematic) risk than single manager funds and adjust their risk to a lesser extent as response to prior performance. In their investment style teams are less extreme and more consistent over time. Looking at fund performance, we find some, albeit only weak, evidence that team management has a negative impact on fund performance. However, team-managed funds are more persistent in their performance over time. Fund investors seem to care about fund management structure. Our findings show that team-managed funds experience significantly higher inflows.

Keywords: Mutual Funds, Team Management, Performance, Risk-Taking, Investment Style, Fund Flows

JEL Classification: G23, M54