Portfolio Manager Ownership and Fund Performance

45 Pages Posted: 13 Sep 2006  

Ajay Khorana

Georgia Institute of Technology - Finance Area

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

Lei Wedge

University of South Florida

Multiple version iconThere are 2 versions of this paper

Date Written: August 10, 2006

Abstract

This paper documents the level of portfolio manager ownership in the funds they manage and examines whether higher ownership is associated with improved future performance. Almost half of all managers have ownership stakes in their funds, though the absolute investment is modest. Future risk-adjusted performance is positively related to managerial ownership, with performance improving by about three basis points for each basis point of managerial ownership. These findings persist after controlling for various measures of fund board effectiveness. Fund manager ownership is higher in funds with better past performance, lower front-end loads, smaller size, funds affiliated with smaller families, and where the manager has been in charge for a longer period of time. It is also higher in funds with higher board member compensation and in equity funds relative to bond funds. Future performance is positively related to the component of ownership that can be predicted by other variables, as well as the unpredictable component. Our findings support the notion that managerial ownership has desirable incentive alignment attributes for mutual fund investors, and indicate that the disclosure of this information is useful in making portfolio allocation decisions.

Keywords: manager ownership, fund performance, mutual fund board

JEL Classification: G20, G30

Suggested Citation

Khorana, Ajay and Servaes, Henri and Wedge, Lei, Portfolio Manager Ownership and Fund Performance (August 10, 2006). ECGI - Finance Working Paper No. 148/2007. Available at SSRN: https://ssrn.com/abstract=923537 or http://dx.doi.org/10.2139/ssrn.923537

Ajay Khorana

Georgia Institute of Technology - Finance Area ( email )

755 Ferst Drive
Atlanta, GA 30332
United States
404-894-5110 (Phone)
404-894-6030 (Fax)

Henri Servaes (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7000 8268 (Phone)
+44 20 7000 8201 (Fax)

HOME PAGE: http://faculty.london.edu/hservaes/

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Lei Wedge

University of South Florida ( email )

Tampa, FL 33620-5500
United States

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