Side-by-Side Management of Hedge Funds and Mutual Funds

We examine situations where the same fund manager simultaneously manages mutual funds and hedge funds. We refer to this as side-by-side management. We document 344 such cases involving 693 mutual funds and 538 hedge funds. Proponents of this practice argue that it is essential to hire and retain sta...

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Bibliographic Details
Published in:The Review of financial studies 2010-06, Vol.23 (6), p.2342-2373
Main Authors: Nohel, Tom, Wang, Z. Jay, Zheng, Lu
Format: Article
Language:English
Subjects:
Asset management
Business management
Conflicts of interest
Fees
Financial portfolios
Hedge funds
Investment
Investment advisors
Investment strategies
Investors
Managers
Mutual funds
Peers
Portfolio management
Studies
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Summary:We examine situations where the same fund manager simultaneously manages mutual funds and hedge funds. We refer to this as side-by-side management. We document 344 such cases involving 693 mutual funds and 538 hedge funds. Proponents of this practice argue that it is essential to hire and retain star performers. Detractors argue that the temptation for abuse is high, and the practice should be banned. Our analysis based on various performance metrics shows that side-by-side mutual fund managers significantly outperform peer funds, consistent with this privilege being granted primarily to star performers. Interestingly, side-by-side hedge fund managers are at best on par with their style category peers, casting further doubt on the idea that conflicts of interest undermine mutual fund investors. Thus, we find no evidence of welfare loss for mutual fund investors due to exploitation of conflicts of interest.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hhq008