DP4788 Favouritism in Mutual Fund Families? Evidence on Strategic Cross-Fund Subsidization

Author(s): José-Miguel Gaspar, Massimo Massa, Pedro Pinto Matos
Publication Date: December 2004
Keyword(s): IPO, mutual funds
JEL(s):
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4788

We investigate whether mutual fund families strategically transfer performance across member funds to favour those more likely to increase overall family profits. We find that ?high family value? funds (i.e., high fees or high past performers) overperform at the expense of ?low value? funds. Such a performance gap is above the one existing between similar funds not affiliated with the same family. Better allocations of underpriced IPO deals and opposite trades across member funds partly explain why high value funds overperform. Our findings highlight how the family organization prevalent in the mutual fund industry generates distortions in delegated asset management.