Hedge funds managed by listed firms significantly underperform funds managed by unlisted firms. We argue that since the new shareholders of a listed management company typically do not invest alongside the limited partners of the funds managed, the process of going public breaks the incentive alignment between ownership, control, and investment capital, thereby engendering agency problems. In line with the agency explanation, the underperformance is more severe for funds that have low manager total deltas, low governance scores, and no manager personal capital, or that are managed by firms whose stock prices are more sensitive to earnings news. Post IPO, listed firms aggressively raise capital by launching multiple new funds. Consequently, despite the underperformance, listed firms harvest greater fee revenues than do comparable unlisted firms. Investors continue to subscribe to hedge funds managed by listed firms as they appear to offer lower operational risk.
hedge funds, IPO, Mispricing
PhD in Business (Finance)
Business Administration, Management, and Operations | Strategic Management Policy
TEO, Song Wee Melvyn
Singapore Management University
City or Country
Essays on asset management. (2016). Singapore Management University. Dissertations and Theses Collection.
Available at: http://ink.library.smu.edu.sg/etd_coll_all/34
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