Outsourcing in the International Mutual Fund Industry: An Equilibrium View

Oleg Chuprinin · Massimo Massa · David Schumacher

75 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Corporate Finance and Governance Outsourcing and Supply Chain Management

Abstract

ABSTRACT We study outsourcing relationships among international asset management firms. We find that, in companies that manage both outsourced and in‐house funds, in‐house funds outperform outsourced funds by 0.85% annually (57% of the expense ratio). We attribute this result to preferential treatment of in‐house funds via the preferential allocation of IPOs, trading opportunities, and cross‐trades, especially at times when in‐house funds face steep outflows and require liquidity. We explain preferential treatment with agency problems: it increases with the subcontractor's market power and the difficulty of monitoring the subcontractor, and decreases with the subcontractor's amount of parallel in‐house activity.

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References

1993Common risk factors in the returns on stocks and bonds 1997On Persistence in Mutual Fund Performance 2002Illiquidity and stock returns: cross-section and time-series effects 1986The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration 1991Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design 1990Property Rights and the Nature of the Firm 2003Liquidity Risk and Expected Stock Returns 1995Firms, Contracts, and Financial Structure

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2019Trading out of sight: An analysis of cross-trading in mutual fund families 2021Political Ideology and International Capital Allocation 2021Friction 2019What is mutual fund flow?2016Speed of Information Diffusion within Fund Families 2018Management sub-advising in the mutual fund industry

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