Professor of Finance
The authors investigate whether mutual fund families strategically allocate performance across their member funds favoring those more likely to generate higher fee income or future inflows. They find evidence of strategic cross-fund subsidization of "high family value" funds (i.e. high fees or high past performers) at the expense of "low value" funds in the order of 6 to 28 basis points of extra net-of-style performance per month, depending on the criteria.This over-performance is above that which would exist between similar funds not part of the same family. They further document how this family strategy takes place by looking at preferential allocation of IPO deals and at the amount of opposite trades among "high value" and "low value" funds belonging to the same fund complex (a practice that can encompass "cross-trading").Their findings complement the existing literature on distortions in delegated asset management by highlighting the role played by family affiliation.