Performance Comparison of Institutional and Retail Mutual Funds Using Multifactor Models

Abstract

Institutional mutual funds cater specifically to institutional and other large investors. They differ from retail mutual funds in important aspects that could affect their relative performance: very high minimum initial and subsequent investment requirements that put them out of the reach of individual investors, large and discreet flow of funds, and a closer relationship between the fund manager and the institutional investor who closely monitors performance using sophisticated measures. Although a substantial amount of literature exists on retail mutual fund characteristics and performance, institutional mutual funds have received little attention to date. This study examines whether differences in fund characteristics influence the relative performance of institutional funds, before fees and expenses. Using mutual fund historical