Institutional Investors and Mutual Fund Governance: Evidence from Retail – Institutional Fund Twins

Richard B. Evans and Ruediger Fahlenbrach
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Richard B. Evans: Darden School of Business, University of Virginia

No 11-31, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Some investment advisors offer multiple versions of a fund with the same manager and highly correlated returns. But these “twin” funds are separate portfolios for different investors with differing abilities to select and monitor managers. Using a matched sample of retail and institutional twin funds, we investigate whether retail investors benefit from investing alongside their institutional counterparts. We find that retail funds with an institutional twin outperform by 1.5% risk-adjusted annually. We demonstrate that institutional twin investors are more sensitive to high fees and poor risk-adjusted performance than retail investors. We analyze whether the difference in sensitivities can help explain the better performance by focusing on changes to fees and portfolio composition of retail funds after the creation of an institutional twin. We find that after the institutional twin is created, retail investors benefit from lower turnover, reduced expenses and greater managerial effort consistent with the reduction of agency problems from greater monitoring.

Keywords: Governance; Mutual funds; Institutional investors; Performance sensitivity; Identification (search for similar items in EconPapers)
JEL-codes: G23 G34 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2011-08
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Related works:
Journal Article: Institutional Investors and Mutual Fund Governance: Evidence from Retail--Institutional Fund Twins (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1131

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