Spillovers of Senior Mutual Fund Managers’ Capital Raising Ability

This paper documents a sizeable spillover effect of senior mutual fund managers’ capital raising ability on their colleagues. I find that when a junior fund manager has new senior colleagues in a fund, the junior manager’s other funds also have substantial capital inflows. To identify the cause of these capital inflows, I extend the active investment skill in the Berk and Green model with capital raising ability. Empirical evidence shows that a fund manager’s performance in other funds (measured by net or gross alphas) decreases significantly after having new senior colleagues, and value added from the active investment does not increase. This is consistent with a spillover effect of senior managers’ capital raising ability rather than active investment skill.