Institutional Investors and Mutual Fund Governance: Evidence from Retail – Institutional Fund Twins
AbstractSome 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.
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Bibliographic InfoPaper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 11-31.
Length: 57 pages
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Governance; Mutual funds; Institutional investors; Performance sensitivity; Identification;
Other versions of this item:
- Richard B. Evans & Rüdiger Fahlenbrach, 2012. "Institutional Investors and Mutual Fund Governance: Evidence from Retail--Institutional Fund Twins," Review of Financial Studies, Society for Financial Studies, vol. 25(12), pages 3530-3571.
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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