Playing favorites: Conflicts of interest in mutual fund management

Diane Del Guercio, Egemen Genç and Hai Tran

Journal of Financial Economics, 2018, vol. 128, issue 3, 535-557

Abstract: We examine the performance of mutual funds whose managers simultaneously manage portfolios with performance-based incentive fees for three account types: mutual funds, hedge funds, and separate accounts. Importantly, our data set is free of selection bias because it is hand-collected from mandatory SEC filings. We find that only funds whose managers also manage hedge funds significantly underperform peer mutual funds. Moreover, underperformance begins only after fund managers begin to manage a hedge fund. We find that managerial incentives and opportunities for cross-subsidization explain variation in underperformance across funds, supporting the conflicts of interest hypothesis in the debate on “side-by-side management.”

Keywords: Conflicts of interest; Side-by-side management; Mutual funds; Hedge funds; Performance-based fees (search for similar items in EconPapers)
JEL-codes: G11 G23 G28 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:128:y:2018:i:3:p:535-557

DOI: 10.1016/j.jfineco.2017.04.012

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