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Journal of Finance Vol. 70 No. 5 2015

Outsourcing in the International Mutual Fund Industry: An Equilibrium View

Oleg Chuprinin; Massimo Massa; David Schumacher1,2

1 Oleg Chuprinin is with UNSW Business School, University of New South Wales, Massimo Massa is with INSEAD, and David Schumacher is with the Desautels Faculty of Management, McGill University. We thank Cam Harvey (the Editor), two anonymous referees, an anonymous Associate Editor, Viral Acharya, Juan · 2 Oleg Chuprinin is with UNSW Business School, University of New South Wales, Massimo Massa is with INSEAD, and David Schumacher is with the Desautels Faculty of Management, McGill University. We thank Cam Harvey (the Editor), two anonymous referees, an anonymous Associate Editor, Viral Acharya, Juan

Abstract

We study outsourcing relationships among international asset management firms. We find that, in companies that manage both outsourced and in‐house funds, in‐house funds outperform outsourced funds by 0.85% annually (57% of the expense ratio). We attribute this result to preferential treatment of in‐house funds via the preferential allocation of IPOs, trading opportunities, and cross‐trades, especially at times when in‐house funds face steep outflows and require liquidity. We explain preferential treatment with agency problems: it increases with the subcontractor's market power and the difficulty of monitoring the subcontractor, and decreases with the subcontractor's amount of parallel in‐house activity.

DOI
10.1111/jofi.12259
Volume
70
Issue
5
Pages
2275-2308
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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