Investor Flows to Asset Managers: Causes and Consequences

Abstract

Cash flows between investors and funds are both cause and effect in a complex web of economic decisions. Among the issues at stake are the prospects and fees of the funds, the efforts and risk choices by the funds' managers, the pricing and comovement of the assets they trade, the stability of the financial system and the real economy, and the retirement security and protection of the investors. There is an accordingly large and growing literature on flows that has concentrated on the main retail investment pool, the open-end mutual fund, and has used flows to explore many aspects of retail financial decision making. We survey this literature and, where relevant, describe how open-end flows compare to other investment vehicles. We also identify opportunities both for future research and for refinement of mutual fund design, in particular as suggested by the recent rethinking of retail investment pools in the European Union.

Managerial Rents vs. Shareholder Value in Delegated Portfolio Management: The Case of Closed-End Funds

“…While their model focuses on fee increases as a channel for outperforming managers to capture rents, our results suggest that AUM expansions also play an important role. Our results also suggest that the response of fund premiums to 3 Numerous papers have studied the response of fund flows to past performance of OEFs (see Christoffersen, Musto, and Wermers (2014) for a comprehensive review of this literature). Christoffersen (2001) and Warner and Wu (2011) have respectively studied fee waivers and contractual fee changes in OEFs.…”

Alphanomics: The Informational Underpinnings of Market Efficiency

“…This learning model would seem to be less relevant, however, in the case of market-wide fund flows and returns. See Christoffersen et al [2014] for an excellent survey of the literature on investor flows. insufficient attention to profitability in valuing IPOs.…”

“…Likewise, find that during periods of heavy (light) aggregate corporate investments, analysts' forecasts of future macroeconomic and firm-specific growth are too optimistic (pessimistic). 6 In sum, although the causes and consequences of investor flows is an on-going area of research (see Christoffersen et al [2014] for an excellent summary), some stylized facts are clear. Flows of investment capital are highly sensitive to past performance and do not seem to pay sufficient attention to fundamentals.…”

Investor Concentration, Flows, and Cash Holdings: Evidence from Hedge Funds

“…A large literature looks at the flow-performance relationship of mutual funds and hedge funds (see, for example, Chevalier and Ellison (1997); Sirri and Tufano (1998); Lynch and Musto (2003); Chen, Goldstein, and Jiang (2010) ;Li, Zhang, and Zhao (2011);Christoffersen, Musto, and Wermers (2014) ;Getmansky, Liang, Schwarz, and Wermers (2015);and Goldstein, Jiang, and Ng (2015)). Generally, this literature investigates whether a negative performance leads to investor outflows.…”