DP10465 Subcontracting in International Asset Management: New Evidence on Market Integration

Author(s): Massimo Massa, David Schumacher
Publication Date: March 2015
Keyword(s): International Markets, Market Integration, Mutual funds, Outsourcing
JEL(s): G15, G23, G30, G32
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10465

We study the decisions of international asset managers to outsource portfolio management of their funds and we link these decisions to market integration. Using a structural model of selfselection, we endogenize the decision to outsource in a comprehensive sample of international mutual funds and identify both performance and non-performance related determinants of outsourcing. Outsourcing fund management generates net positive gains to fund families of around 8-17 bp per month despite the ex-post underperformance of outsource funds relative to inhouse funds. Then, we establish that the performance improvements from outsourcing are directly related to segmentation in the underlying asset markets.