Affiliation and Delegated Portfolios
Friday, Jan. 6, 2017 8:00 AM – 10:00 AM
Sheraton Grand Chicago, Chicago Ballroom IX
- Chair: Veronika Pool, Indiana University
Financial Conglomerate Affiliation and Hedge Funds’ Countercyclical Risk Taking
AbstractWe show that financial-conglomerate-affiliated hedge funds (FCAHFs) have more stable funding and lower flow-performance sensitivity than other funds even though they are less likely to impose impediments on withdrawals. Arguably due to their privileged access to funding, during periods of financial turmoil, FCAHFs are able to take more risk and to purchase less liquid and more volatile stocks than other hedge funds. During good times, instead, FCAHFs expand their assets less than other funds and are less exposed to systematic risk factors. Thus, FCAHFs appear to perform a stabilizing function for the financial system even though they do not generate higher returns for their investors.
Interfund lending in mutual fund families: Role in liquidity management
AbstractAlthough the 1940 Act restricts interfund lending within a mutual fund family, families can apply for regulatory exemptions to participate in interfund lending. We find that heterogeneity in portfolio liquidity and investor flows across funds, funds’ investment restrictions, and governance mechanisms influence the fund family’s decision to apply for interfund lending. We document several costs and benefits of interfund lending. Costs include lower sensitivity of managers’ turnover to past performance and greater investor withdrawal for poorly governed funds. Benefits include funds being able to hold more illiquid and concentrated portfolios, and being less susceptible to runs.
Harvard Business School
- G1 - Asset Markets and Pricing