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Investment Management and Risk Sharing with Multiple Managers

Authors

  • CHRISTOPHER B. BARRY,

  • LAURA T. STARKS

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    • Southern Methodist University and Washington University-St. Louis, respectively. The authors have benefitted from discussions with Mark Kritzman, Stephen Brown, Louis Ederington, Jim Little, Jess Yawitz, Bill Marshall, and Russell Fogler. The suggestions of an anonymous referee have improved the presentation. We retain sole responsibility for the conclusions, however. An earlier version of this paper was presented at the Financial Management Association Meetings in San Francisco, October 14, 1982.


ABSTRACT

This paper addresses the investor's decision to employ multiple managers for the management of investment funds. Under conditions such that specialization of managers and diversification among managers are not motives for the use of multiple managers, the paper shows that risk sharing considerations may be sufficient. A model is developed in which the decision to use multiple managers is explicitly treated, and conditions are studied such that an increase or decrease in the number of managers would be desirable. Under some conditions, a multiple manager solution is preferred over a single manager solution.

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