Horses for Courses: Fund Managers and Organizational Structures

Yufeng Han, Tom Noe and Michael Rebello

Journal of Financial and Quantitative Analysis, 2017, vol. 52, issue 6, 2779-2807

Abstract: We model and test the relations between the team management of mutual funds, managers’ ability, performance, and holdings. Our model predicts that team-managed funds perform better and behave more conservatively than single-manager funds. However, the effect of team management is masked in equilibrium because high-ability managers rationally self-select into single-manager funds. Consistent with the model’s prediction, we find that team-managed funds perform better and deviate less from their benchmark allocations than single-manager funds with the same characteristics. These differences are marked after we control for the endogenous self-selection of managers.

Date: 2017
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