Essays on delegated asset management

Garavito, Fabian (2010) Essays on delegated asset management. PhD thesis, London School of Economics and Political Science.

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Abstract

My thesis explores issues concerned with delegated asset management and their implications for asset prices. The first chapter of my thesis documents how the organizational form of a mutual fund affects its investment strategies. I show that decentralized funds allocate a greater portion of their capital to soft (opaque) information companies than centralized funds. Consistent with the inability of centralized organizations to handle soft information, I find that decentralized funds are better at investing in soft information companies than hierarchical funds. Furthermore, I find that high levels of ownership by decentralized funds predict high future returns for soft information companies. The second chapter shows that while fund families may use mutual fund incubation (the creation and management of a fund before it is offered to the public) in an opportunistic fashion, they also seem to use it to foster innovation. I document that fund families tend to launch their incubated funds when their past performance is high, consistent with a behaviour that aims to exploit the convex relationship between past performance and current flows. However, I also show that, after their Initial Public Offerings (IPO's), incubated funds tend to hold more illiquid stocks, hold more concentrated portfolios, invest in less-popular securities and are better at purchasing stocks than non-incubated funds. This difference in investment strategies is due to the incubation period as it allows managers to explore different corners of the market without having to take into account performanc-induced capital flows. I also present evidence that, despite their outstanding pre-IPO track records, incubated funds attract a smaller share of new-fund capital flows than non-incubated funds. The third chapter (joint work with Dr. Mungo Wilson) shows that mutual fund families cater to investors' demand by offering funds with investment styles that are in vogue. I also show that this catering exacerbates the ''dumb money" effect. In other words, fund IPOs have a positive effect on the persistence of investment style capital flows.

Item Type:	Thesis (PhD)
Uncontrolled Keywords:	Economics, Finance
Sets:	Collections > ProQuest Etheses Departments > Finance
URI:	http://etheses.lse.ac.uk/id/eprint/2209

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