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Journal of Financial and Quantitative Analysis Vol. 59 No. 2 2024

Capital Commitment and Performance: The Role of Mutual Fund Charges

Juan-Pedro Gómez1,2,3,4; Melissa Porras Prado1,2,3,4; Rafael Zambrana1,2,3,4

1 University of Notre Dame · 2 IE University · 3 Universidad Autónoma de Madrid · 4 The University of Texas at Austin

open access

Abstract

We study how the scarcity of committed capital affects the equilibrium distribution of net alphas in the asset management industry. We propose a model of active portfolio management with different sales fee structures where committed capital is in short supply. In the model, a portfolio’s excess return is not fully appropriated by the money manager but shared with long-term investors. Empirically, we show that capital commitment allows funds to hold shares longer and take advantage of slow-moving arbitrage opportunities. Consistent with the model, funds with more committed capital generate higher value added, which, net of fees, accrues to long-term investors.

DOI
10.1017/s0022109022001235
Volume
59
Issue
2
Pages
727-758
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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