Using fund compensation disclosure and measures of intra-family manager cooperation, we create an index of competitive and cooperative incentives within a fund family. We find evidence consistent with a separating equilibrium, where some fund families encourage cooperation among their managers, while other fund families encourage competition. Consistent with those incentives, the managers of competitive advisors have higher average performance and a higher fraction of "star" funds, but higher variation in performance among funds as well. Families with more cooperative incentives they are more likely to engage in cross-subsidization through cross-holding and cross-trading. In families with net cooperative incentives are also more likely to recapture outflows, and for publicly traded advisors, exhibit lower cash flow and firm stock return volatility. In examining the strategic choice between cooperative and competitive incentives, clientele plays an important role. While competitive families are more likely to manage institutional money, cooperative families are more likely to have their fund offerings marketed through a broker-distribution channel, consistent with investor demand for non-performance related characteristics.
Original languageEnglish
StateSubmitted - 15 Jun 2017

    Research areas

  • Mutual fund, manager, compensation, incentives, competition, cooperation, cross-holding, performance, cross-subsidization, internal capital markets

ID: 3088501