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Favoritism in Mutual Fund Families? Evidence on Strategic Cross-Fund Subsidization





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    • Gaspar is at ESSEC Business School; Massa is at INSEAD; and Matos is at the University of Southern California Marshall School of Business. We thank an anonymous referee, Marshall Blume, Bernard Dumas, Randy Cohen, Chris Gezcy, William Goetzmann, Sendhil Mullainathan, David Musto, Richard Kihlstrom, Urs Peyer, Jonathan Reuter, Steve Ross, Ana Scherbina, Clemens Sialm, Erik Sirri, Robert Stambaugh (the editor), Peter Tufano, Theo Vermaelen, and participants at the EFA meetings for their comments. Any remaining errors are our own. Financial support from INQUIRE Europe and Fundação para a Ciência e Tecnologia (Gaspar and Matos) is gratefully acknowledged.


We investigate whether mutual fund families strategically transfer performance across member funds to favor those more likely to increase overall family profits. We find that “high family value” funds (i.e., high fees or high past performers) overperform at the expense of “low value” funds. Such a performance gap is above the one existing between similar funds not affiliated with the same family. Better allocations of underpriced initial public offering deals and opposite trades across member funds partly explain why high value funds overperform. Our findings highlight how the family organization prevalent in the mutual fund industry generates distortions in delegated asset management.