The Value of Cross-Trading to Mutual Fund Families in Illiquid Markets: A Portfolio Choice Approach

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.

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Strategic Performance Allocation in Institutional Asset Management Firms: Behold the Power of Stars and Dominant Clients

Chaudhuri

Ivkovich

Trzcinka

2012

SSRN Journal

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The Value of Cross-Trading to Mutual Fund Families in Illiquid Markets: A Portfolio Choice Approach

Cited by 4 publications

References 67 publications

Conflicts of interest in multi-fund management

Conflicts of interest in multi-fund management

Conflicting Family Values in Mutual Fund Families

Strategic Performance Allocation in Institutional Asset Management Firms: Behold the Power of Stars and Dominant Clients

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