Does concurrent management of mutual and hedge funds create conflicts of interest?

Chen, Li-Wen and Fan Chen

Journal of Banking & Finance, 2009, vol. 33, issue 8, pages 1423-1433

Abstract: This paper shows that conflicts of interest may exist in cases where a hedge fund manager starts a mutual fund but not in the opposite case. We compare performance, asset flows, and risk incentives to establish several key differences between these two scenarios: First, prior to concurrent management, hedge fund managers experience worse performance while mutual fund managers achieve better performance relative to their full-time peers. Second, hedge fund managers who choose concurrent management are disproportionately the ones with less experience. Their hedge funds tend to suffer a decline in performance after the event. By contrast, mutual fund managers who choose concurrent management tend to outperform their full-time peers. Based on our findings, we make important recommendations for policy makers and companies. The relevance of our recommendations extends beyond the small share of companies presently engaged in concurrent management.

Keywords: Mutual; fund; Hedge; fund; Conflicts; of; interest; Concurrent; management; Side-by-side; management; Reputational; capital; Management; incentives (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:jbfina:v:33:y:2009:i:8:p:1423-1433

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