Using a unique database on investment funds and the conceptual framework of global financial networks, this paper examines the spatial structure of the European investment fund industry, with ...particular focus on Luxembourg and Ireland. Grounded in financial and economic geography, the paper shows how these countries became the leading investment fund domiciles through a mixture of structural factors and agency enabling a fast and flexible implementation of the European Directive on the Undertakings for the Collective Investment in Transferable Securities (UCITS) of 1985, and the cultivation of the investment fund industry ever since. In the process, Luxembourg and Ireland have built on and developed their functions as offshore jurisdictions and international financial centres, both sustained by their governments and regulatory agencies. The analysis of the functional structure of investment funds and their networked geography reveals the increasingly dominant position of London as the investment management centre for the industry, and the increasing concentration of control by large asset management firms. Stripped to its basics, the geography of European investment fund networks is about large, mainly US, asset management firms, creating and managing funds in Luxembourg and Ireland, and investing money through London. As such, the rise of European investment funds can be seen as an example of European financial integration through Americanisation. The Luxembourg and Irish investment fund industry are connected mainly through London and New York, and thus function as satellites of the NY–LON axis, rather than a Luxembourg–Dublin axis in international finance. Overall, the paper demonstrates that studying this seemingly arcane industry, and the role of two small countries in it, reveals much about the nature of financial globalisation.
Using a unique database on investment funds and the conceptual framework of global financial networks, this paper examines the spatial structure of the European investment fund industry. We show the growing importance of Luxembourg and Ireland in the industry, driven by European financial integration, which in turn is led by US banks and asset management firms rather than European firms. We demonstrate that the US influence on the European investment fund industry has operated through the New York–London axis, with Luxembourg and Ireland functioning increasingly as its satellites.
We evaluate why individuals invest in high-fee index funds. In our experiments, subjects each allocate $ 10,000 across four S&P 500 index funds and are rewarded for their portfolio's subsequent ...return. Subjects overwhelmingly fail to minimize fees. We reject the hypothesis that subjects buy high-fee index funds because of bundled nonportfolio services. Search costs for fees matter, but even when we eliminate these costs, fees are not minimized.Instead, subjects place high weight on annualized returns since inception. Fees paid decrease with financial literacy. Interestingly, subjects who choose high-fee funds sense they are making a mistake.
We propose a new method to model hedge fund risk exposures using relatively highfrequency conditioning variables. In a large sample of funds, we find substantial evidence that hedge fund risk ...exposures vary across and within months, and that capturing within-month variation is more important for hedge funds than for mutual funds. We consider different within-month functional forms, and uncover patterns such as day-of-the-month variation in risk exposures. We also find that changes in portfolio allocations, rather than in the risk exposures of the underlying assets, are the main drivers of hedge funds' risk exposure variation.
A central and contentious debate in many literatures concerns the relationship between financial and social performance. We advance this debate by measuring the financial--social performance link ...within mutual funds that practice socially responsible investing (SRI). SRI fund managers have an array of social screening strategies from which to choose. Prior studies have not addressed this heterogeneity within SRI funds. Combining modern portfolio and stakeholder theories, we hypothesize that the financial loss borne by an SRI fund due to poor diversification is offset as social screening intensifies because better-managed and more stable firms are selected into its portfolio. We find support for this hypothesis through an empirical test on a panel of 61 SRI funds from 1972 to 2000. The results show that as the number of social screens used by an SRI fund increases, financial returns decline at first, but then rebound as the number of screens reaches a maximum. That is, we find a curvilinear relationship, suggesting that two long-competing viewpoints may be complementary. Furthermore, we find that financial performance varies with the types of social screens used. Community relations screening increased financial performance, but environmental and labor relations screening decreased financial performance. Based on our results, we suggest that literatures addressing the link between financial and social performance move toward in-depth examination of the merits of different social screening strategies, and away from the continuing debate on the financial merits of either being socially responsible or not.
This study examines whether the standard compensation contract in the hedge fund industry aligns managers' incentives with investors' interests. I show empirically that managers' compensation ...increases when fund assets grow, even when diseconomies of scale in fund performance exist. Thus, managers' compensation is maximized at a much larger fund size than is optimal for fund performance. However, to avoid capital outflows, managers are also motivated to restrict fund growth to maintain styleaverage performance. Similarly, fund management firms have incentives to collect more capital for all funds under management, including their flagship funds, even at the expense of fund performance.
While strategy scholars primarily focus on internal firm capabilities and network scholars typically examine network structure, we posit that firms with superior network structures may be better able ...to exploit their internal capabilities and thus enhance their performance. We examine how innovative capabilities--both those of focal firms and those they access through their networks--influence the performance of Canadian mutual fund companies. We find that a firm's innovative capabilities and its network structure both enhance firm performance, while the innovativeness of its contacts does not do so directly. Innovative firms that also bridge structural holes get a further performance boost, suggesting that firms need to develop network-enabled capabilities--capabilities accruing to innovative firms that bridge structural holes.
Anticipating the competitive disadvantage of economically weak regions in an integrated European single market, the European Union (EU) redistributes money to alleviate economic inequalities and ...increase cohesion. However, the amount of European redistribution is very moderate and the recent years have shown that Eurosceptic parties gain ground, especially in economically weak areas. So is Eurosceptic voting related to an insufficient compensation of the losers of EU integration? Combining European Social Survey data with information on regional funding for 123 EU regions, I demonstrate that the probability of a Eurosceptic vote is highest under insufficient compensation. Insufficient compensation occurs among middle income regions that are cut-off from the bulk of funding due to the regional policies' targeted approach. Moreover, some of the poorest regions miss out as well, as the more developed areas among the poor are favored in funds allocation. A taming effect of funding on Eurosceptic voting is therefore restricted to the more prosperous regions in Europe's lagging areas.
We analyze the investment behavior of affiliated funds of mutual funds (AFoMFs), which are mutual funds that can only invest in other funds in the family, and are offered by most large families. ...Though never mentioned in any prospectus, we discover that AFoMFs provide an insurance pool against temporary liquidity shocks to other funds in the family. We show that, though the family benefits because funds can avoid fire sales, the cost of this insurance is borne by the investors in the AFoMFs. The paper thus uncovers some of the hidden complexities of fiduciary responsibility in mutual fund families.
Sovereign wealth funds have emerged as major investors in corporate and real resources worldwide. After an overview of their magnitude, we consider the institutional arrangements under which many of ...the sovereign wealth funds operate. We focus on a specific set of agency problems that is of first-order importance for these funds: that is, the direct involvement of political leaders in the management process. We show that sovereign wealth funds with greater involvement of political leaders in fund management are associated with investment strategies that seem to favor short-term economic policy goals in their respective countries at the expense of longer-term maximization of returns. Sovereign wealth funds face several other issues, like how best to cope with demands for transparency, which can allow others to copy their investment strategies, and how to address the problems that arise with sheer size, like the difficulties of scaling up investment strategies that only work with a smaller value of assets under investment. In the conclusion, we discuss how various approaches cultivated by effective institutional investors worldwide--from investing in the best people to pioneering new asset classes to compartmentalizing investment activities--may provide clues as to how sovereign wealth funds might address these issues. PUBLICATION ABSTRACT
The article analyzes the investment activity of sustainable institutional investors after the global financial and economic crisis of 2008. The relevance of the study is conditioned, firstly, by the ...leading positions of institutional investors in the global financial market and in the system of international finance; secondly, by the special role of mutual funds and ETFs in the global market of sustainable finance; thirdly, by the noticeable dynamics of investments by these market participants in recent years, which increasingly turns into divestments. The purpose of the study is to identify current trends in sustainable investment by global institutional investors and formulate their further actions in the short term. To do this, it is necessary to solve the following tasks: to clarify, taking into account the latest statistical data, the impact of the COVID-19 pandemic and other force majeure factors on the size and dynamics of the flow of funds of sustainable institutional investors in the leading countries of the world, and to assess the impact on investment prospects of current political and financial factors. In the course of the study, a significant amount of scientific research was analyzed, which served as a basis for identifying the institutional investors’ approaches to sustainable finance. It is concluded that the prospects for global sustainable investing are favorable due to the continued stimulation of environmental change at the supranational level, both in developed and leading developing countries. The financial success of sustainable investment will also contribute to this.
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