Publication Type

Journal Article

Version

Preprint

Publication Date

6-2010

Abstract

We examine situations where the same fund manager simultaneously manages mutual funds and hedge funds. We refer to this as side-by-side management. We document 344 such cases involving 693 mutual funds and 538 hedge funds. Proponents of this practice argue that it is essential to hire and retain star performers. Detractors argue that the temptation for abuse is high and the practice should be banned. Our analysis based on various performance metrics shows that side-by-side mutual fund managers significantly outperform peer funds, consistent with this privilege being granted primarily to star performers. Interestingly, side-by-side hedge fund managers are at best on par with their style category peers, casting further doubt on the idea that conflicts of interest undermine mutual fund investors. Thus, we find no evidence of welfare loss for mutual fund investors due to exploitation of conflicts of interest.

Discipline

Finance and Financial Management

Publication

Review of Financial Studies

Issue

6

First Page

2342

Last Page

2373

ISSN

0893-9454

Identifier

10.1093/rfs/hhq008

Publisher

Oxford University Press

Copyright Owner and License

Authors

Comments

Forthcoming in the Review of Financial Studies.

Additional URL

https://doi.org/10.1093/rfs/hhq008

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