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

• Pedro Pinto Matos Massimo Massa José-Miguel Gaspar
23 Dec 2004

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.