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Tailored versus Mass Produced: Portfolio Managers Concurrently Managing Separately Managed Accounts and Mutual Funds
Author(s) -
Chen Fan,
Chen LiWen,
Johnson Hardy,
Sardarli Sabuhi
Publication year - 2017
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12141
Subject(s) - sma* , portfolio , business , market liquidity , active management , finance , project portfolio management , economics , computer science , management , algorithm , project management
Using a matched sample of separately managed accounts (SMAs) and mutual funds (MFs) with the same portfolio manager and investment style, we find that concurrently managed MFs consistently underperform their SMA counterparts and generate more negative return gaps. Fund characteristics and liquidity betas fail to fully explain the underperformance. An event‐study analysis finds that the weights placed into top (bottom)‐performing stocks increase for existing SMAs (MFs) and negative return gaps increase for the MFs after the onset of concurrent management. We find that higher compensation collected by SMA fund managers are associated with more unseen managerial actions which positively contribute to the SMA return gap. Our results suggest that when managers concurrently manage both SMAs and MFs, they favor SMA performance over their MF performance.