Ownership, Risk and Performance of Mutual Fund Management Companies

Michael Berkowitz and Jiaping Qiu

Working Papers from University of Toronto, Department of Economics

Abstract: This paper compares the performance of mutual funds managed by publicly-traded management companies with those managed by private management companies. We find that publicly-traded management companies invest in riskier assets and charge higher management fees than do the funds managed by private management companies. The risk-adjusted returns of the mutual funds managed by publicly-traded management companies are also lower than those of the mutual funds managed by private management companies. This finding is consistent with both a risk spreading and agency cost argument. The paper also shows that the idiosyncratic risk of the publicly-traded management company's stock significantly differs from the idiosyncratic risk of the assets they manage, suggesting that previous research using the stock's idiosyncratic risk as a proxy for the idiosyncratic risk of the company's assets to study the determinants of publicly-traded companies' ownership concentration may be misleading.

Date: 2001-07-11
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Journal Article: Ownership, risk and performance of mutual fund management companies (2003)
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