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Mutual fund performance when parent firms simultaneously manage hedge funds

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  • Cici, Gjergji
  • Gibson, Scott
  • Moussawi, Rabih

Abstract

This study examines the performance of mutual funds managed by firms that simultaneously manage hedge funds. We find that the reported returns of mutual funds in these "side-by-side" associations with hedge funds significantly underperformed those of mutual funds that shared similar fund and family characteristics but differed in that they were not affiliated with hedge funds. Digging deeper into performance, we find that the underperformance was confined to return gaps, a return measure that captures the impact of unobservable managerial actions. Interestingly, mutual funds with investment styles that were most closely aligned to affiliated hedge funds generated reported-return alphas and return gaps that underperformed by the greatest amount. Finally, we find that side-by-side mutual funds received less of a contribution to performance from IPO underpricing than similar unaffiliated mutual funds or affiliated hedge funds. Evidence does not support the hypothesis that affiliations with hedge funds allow side-by-side mutual funds to attract superior stock-picking talent. Our evidence does not allow us to rule out the possibility that management firms maximized fee income by strategically transferring performance from mutual funds to hedge funds.

Suggested Citation

  • Cici, Gjergji & Gibson, Scott & Moussawi, Rabih, 2010. "Mutual fund performance when parent firms simultaneously manage hedge funds," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 169-187, April.
  • Handle: RePEc:eee:jfinin:v:19:y:2010:i:2:p:169-187
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    Cited by:

    1. Bodnaruk, Andriy & Rossi, Marco, 2016. "Dual ownership, returns, and voting in mergers," Journal of Financial Economics, Elsevier, vol. 120(1), pages 58-80.
    2. Berzins, Janis & Liu, Crocker H. & Trzcinka, Charles, 2013. "Asset management and investment banking," Journal of Financial Economics, Elsevier, vol. 110(1), pages 215-231.
    3. Eric Zitzewitz, 2012. "Forensic Economics," Journal of Economic Literature, American Economic Association, vol. 50(3), pages 731-769, September.
    4. Bryant, Lonnie L. & Liu, Hao-Chen, 2011. "Mutual fund industry management structure, risk and the impacts to shareholders," Global Finance Journal, Elsevier, vol. 22(2), pages 101-115.
    5. Cici, Gjergji & Jaspersen, Stefan & Kempf, Alexander, 2015. "Speed of information diffusion within fund families," CFR Working Papers 15-02 [rev.], University of Cologne, Centre for Financial Research (CFR).
    6. Cici, Gjergji & Rosenfeld, Claire, 2016. "A study of analyst-run mutual funds: The abilities and roles of buy-side analysts," Journal of Empirical Finance, Elsevier, vol. 36(C), pages 8-29.
    7. Chan, Chia-Ying & Chen, Hsuan-Chi & Chiang, Yu Hsuan & Lai, Christine W., 2017. "Fund selection in target date funds," The North American Journal of Economics and Finance, Elsevier, vol. 39(C), pages 197-209.
    8. Casavecchia, Lorenzo & Tiwari, Ashish, 2016. "Cross trading by investment advisers: Implications for mutual fund performance," Journal of Financial Intermediation, Elsevier, vol. 25(C), pages 99-130.
    9. Agarwal, Vikas & Ma, Linlin & Mullally, Kevin, 2015. "Managerial multitasking in the mutual fund industry," CFR Working Papers 13-10 [rev.], University of Cologne, Centre for Financial Research (CFR).
    10. Agarwal, Vikas & Lu, Yan & Ray, Sugata, 2014. "Under one roof: A study of simultaneously managed hedge funds and funds of hedge funds," CFR Working Papers 14-13, University of Cologne, Centre for Financial Research (CFR).
    11. Cici, Gjergji & Rosenfeld, Claire, 2012. "The investment abilities of mutual fund buy-side analysts," CFR Working Papers 12-07, University of Cologne, Centre for Financial Research (CFR).
    12. Agarwal, Vikas & Ma, Linlin, 2013. "Managerial multitasking in the mutual fund industry," CFR Working Papers 13-10, University of Cologne, Centre for Financial Research (CFR).
    13. Chia-Ying Chan & Christine W. Lai & Liang-Chung Lee, 2017. "Strategic Choice of Risk: Evidence from Mutual Fund Families," Journal of Financial Services Research, Springer;Western Finance Association, vol. 51(1), pages 125-163, February.

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