The virulent European Union hedge fund debate led many observers to suspect a paradigmatic battle between liberal market economies and countries in favour of tighter regulation. By contrast, this ...article points to the economic interests that drove government agendas. However, national preferences were not defined by the aggregate of a country's economic interests, but by very specific stakeholders only, despite the existence of opponents with considerable resources. This article argues that the unequal success of financial lobbyists depended on how their demands fitted into the government's overarching negotiation strategy. The primacy of government objectives, in turn, resulted from the high saliency of financial regulation and hedge funds in particular.
Using a sample of open‐end equity mutual funds in China from 2004 to 2017, this study investigates the motivations and consequences of flow‐driven fund risk shifting behaviour. We find that funds ...experiencing large inflows tend to reduce their degree of risk‐taking. However, good past performance drives funds with high net flows to increase their risk level. High‐performing funds increase risk by increasing turnover, increasing the proportion of equity holdings, and buying more winner stocks. Moreover, risk shifting caused by the flow‐driven trades of high‐performing funds worsens fund performance in the ensuing two quarters before recovering in the third quarter. Finally, high abnormal flow, high performance sourced from luck, young fund age, and small fund size enhance the risk shifting of high‐performing funds when experiencing high flow.
In this paper, we analyzed the risk-adjusted performance of funds related to Environmental, Social and Governance (ESG-related funds), considering periods of financial constraints and the COVID-19 ...Pandemic. The database is comprised of 3,840 equity mutual funds in the period from January/2006 to December/2020. Each year, considering daily returns, we employed the Returns-Based Style Analysis to classify each fund as an ESG-related fund or a conventional fund; all funds in the category "Equities - Sustainability / Governance" were also considered as ESG-related mutual funds. Using daily data, for each year, the performance was estimated based on the four-factors model. The main results indicate that, on average, ESG-related funds presented higher risk-adjusted returns during periods of financial constraints. These results suggest that, during market downturns, investors tend to obtain better risk-adjusted returns for investing in green funds. A similar result was observed in relation to the COVID-19 period, suggesting that, based on the methods and procedures used, ESG-related funds achieved a better performance when compared to "conventional" funds during the Pandemic.
ABSTRACT This study investigates factors that affect the rate of returns of AMCs in Pakistan. For this, four major types of Mutual funds were selected, and the effect of four macro-specific variables ...on their returns were investigated by using unstructured interviews, developing and comparing the effect of the factors in different categories of funds and for different classes of funds. Results showed that the factors positively impacting the rate of return are GDP Growth, Saving, Consumption and investment of the economy, along with Fund Size and the characteristics of the Money Market. Some variables have no impact on the rate of returns, i.e. Liquidity, Asset Turnover and Management Fees. This study figured out that Inflation and front-end load have a negative impact on the rate of returns of AMCs. The characteristics of equity fund impact have challenging to analyze with the rate of return because the relation of fund returns mostly depends on the fundamental of the stock market. However, macroeconomic factors affect the fund market or any specific class of funds.
Drawing on data collected in interviews with investors and corporates in the United States and Europe, this paper sheds light on the motives behind shareholder engagement. It explains why index funds ...engage in corporate governance, despite their apparent lack of financial incentive to do so. Applying Hirschman's concepts of exit and loyalty to the investment management industry, this paper suggests that for many institutional shareholders today, voice is more feasible than exit. For the largest index investors, the cost of engagement has fallen to a level where it is today negligible. The immense concentration amongst index funds, with the three largest fund managers controlling over 90 percent of assets, ensures sufficient return on their governance investments. Furthermore, interviews with activist investors suggest that they have learned to work with index investors and that index funds do not present barriers to successful campaigns. This paper therefore advocates against restricting index funds’ voting rights. Doing so would muzzle those shareholders with the deepest pockets and the greatest potential for corporate oversight. Instead what is needed is regulation to ensure greater disclosure of engagement efforts by the largest fund companies enabling greater academic and public oversight of asset managers’ engagement activities.
Hedge fund managers receive a large fraction of their funds' profits, paid when funds exceed their high‐water marks. We study the incentives of such performance fees. A manager with long‐horizon, ...constant investment opportunities and relative risk aversion, chooses a constant Merton portfolio. However, the effective risk aversion shrinks toward one in proportion to performance fees. Risk shifting implications are ambiguous and depend on the manager's own risk aversion. Managers with equal investment opportunities but different performance fees and risk aversions may coexist in a competitive equilibrium. The resulting leverage increases with performance fees—a prediction that we confirm empirically.
The first contribution we make to research on measuring U.S. mutual fund performance is to show that the cross-section bootstrap procedure used in one prominent publication on this topic can easily ...accommodate conditional asset pricing models. Using this result, we reestimate US fund performance using the conditional asset pricing model of Ferson and Schadt (1996) for the period of time covering January 1984 to September 2006, the same period of time used in this prominent publication. Unlike most of the current research on the performance of U.S. mutual funds, including the latter research, the estimates of fund performance produced here suggest that some funds, on a net return basis, performed very well over this period. Our second contribution is to update the U.S. mutual fund data to the end of 2018 and then to re-estimate fund performance over this longer period of time. These results show that fund performance, on a net return basis, is poor, confirming the findings of previous research that used data ending before 2018. The third contribution is to provide a detailed guide on how the mutual fund data widely used in this literature is constructed. Until now much of the information required to do this has not been made widely available. Our last contribution is to make some policy recommendations that should better align fund manager incentives with the interests of investors, an alignment which current practices have hindered.
From 1980 to 2006, the financial services sector of the US economy grew from 4.9 percent to 8.3 percent of GDP. A substantial share of that increase was comprised of increases in the fees paid for ...asset management. This paper examines the significant increase in asset management fees charged to both individual and institutional investors. One could argue that the increase in fees charged by actively managed funds could prove to be socially useful if it reflected increasing returns for investors from active management or if it was necessary to improve the efficiency of the market for investors who availed themselves of low-cost passive (index) funds. But neither of these arguments can be supported by the data. Actively managed funds of publicly traded securities have consistently underperformed index funds, and the amount of the underperformance is well approximated by the difference in the fees charged by the two types of funds. Moreover, it appears that there was no change in the efficiency of the market from 1980 to 2011. Thus, the increase in fees is likely to represent a deadweight loss for investors. Indeed, perhaps the greatest inefficiency in the stock market is in “the market” for investment advice.
We show that hedge fund managers who more actively and astutely adjust the political sensitivity of their portfolios, in line with the dynamic U.S. political landscape, improve their investment ...performance. Funds that tilt their portfolios toward market segments expected to perform better during the new political regime, specifically around U.S. Presidential elections, generate significantly higher alphas. Further, hedge fund families with greater responsiveness to political changes exhibit persistently superior performance and are more likely to survive. Hedge fund investors reward more responsive fund managers with greater inflows.
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