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Institutional Investors and Mutual Fund Governance: Evidence from Retail – Institutional Fund Twins


  • Richard B. EVANS

    (Darden School of Business, University of Virginia)


    (Ecole Polythechnique Fédérale de Lausanne and Swiss Finance Institute)


Some 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.

Suggested Citation

  • Richard B. EVANS & Rüdiger FAHLENBRACH, "undated". "Institutional Investors and Mutual Fund Governance: Evidence from Retail – Institutional Fund Twins," Swiss Finance Institute Research Paper Series 11-31, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp1131

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    Cited by:

    1. Mamatzakis, Emmanuel & Xu, Bingrun, 2017. "Does corporate governance matter in fund management company: the case of china," MPRA Paper 76138, University Library of Munich, Germany.
    2. Debaere, Peter & Evans, Richard B., 2015. "Outsourcing vs. Integration in the Mutual Fund Industry: An Incomplete Contracting Perspective," CEPR Discussion Papers 10599, C.E.P.R. Discussion Papers.
    3. Joseph Gerakos & Juhani T. Linnainmaa & Adair Morse, 2016. "Asset Managers: Institutional Performance and Smart Betas," NBER Working Papers 22982, National Bureau of Economic Research, Inc.
    4. Isabel Abinzano & Luis Muga & Rafael Santamaria, 2016. "The Role of Investor Type in the Fee Structures of Pension Plans," Journal of Financial Services Research, Springer;Western Finance Association, vol. 50(3), pages 387-417, December.
    5. repec:eee:finana:v:54:y:2017:i:c:p:63-75 is not listed on IDEAS
    6. Dahm, Laura K. & Sorhage, Christoph, 2015. "Milk or wine: Mutual funds' (dis)economies of life," CFR Working Papers 15-05, University of Cologne, Centre for Financial Research (CFR).
    7. Jiang, George J. & Yuksel, H. Zafer, 2017. "What drives the “Smart-Money” effect? Evidence from investors’ money flow to mutual fund classes," Journal of Empirical Finance, Elsevier, vol. 40(C), pages 39-58.

    More about this item


    Governance; Mutual funds; Institutional investors; Performance sensitivity; Identification;

    JEL classification:

    • 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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