Outsourcing in the International Mutual Fund Industry: An Equilibrium View

Oleg Chuprinin, Massimo Massa and David Schumacher

Journal of Finance, 2015, vol. 70, issue 5, 2275-2308

Abstract: type="main">

We study outsourcing relationships among international asset management firms. We find that, in companies that manage both outsourced and in-house funds, in-house funds outperform outsourced funds by 0.85% annually (57% of the expense ratio). We attribute this result to preferential treatment of in-house funds via the preferential allocation of IPOs, trading opportunities, and cross-trades, especially at times when in-house funds face steep outflows and require liquidity. We explain preferential treatment with agency problems: it increases with the subcontractor's market power and the difficulty of monitoring the subcontractor, and decreases with the subcontractor's amount of parallel in-house activity.

Date: 2015
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