Investor Concentration, Flows, and Cash Holdings: Evidence from Hedge Funds

Mathias S. Kruttli, Phillip J. Monin and Sumudu Watugala
Additional contact information
Phillip J. Monin: https://www.federalreserve.gov/econres/phillip-monin.htm

No 2017-121, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We show that when only a few investors own a substantial portion of a hedge fund's net asset value, flow volatility increases because investors' exogenous, idiosyncratic liquidity shocks are not diversified away. Using confidential regulatory filings, we confirm that high investor concentration hedge funds experience more volatile flows. These hedge funds hold more cash and liquid assets, which help absorb large, unexpected outflows. Such funds have to pay a liquidity premium and generate lower risk-adjusted returns. Investor concentration does not affect flow-performance sensitivity. These results are robust to including lock-up and redemption periods, strategy, manager ownership, and other controls.

Keywords: Investor concentration; Hedge funds; Flows; Portfolio liquidity; Precautionary cash (search for similar items in EconPapers)
JEL-codes: G11 G20 G23 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2017-12-15
New Economics Papers: this item is included in nep-cfn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2017121pap.pdf (application/pdf)

Related works:
Working Paper: Investor Concentration, Flows, and Cash Holdings: Evidence from Hedge Funds (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2017-121

DOI: 10.17016/FEDS.2017.121

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().