Financial Industry Affiliation and Hedge Fund Performance

• 成果类型: Article
• 署名作者: Zheng, Lingling; Yan, Xuemin (Sterling)
• 署名单位: Renmin University of China; Lehigh University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3864
• 发表日期: 2021
• 页码: 7844-7865
• 关键词: conflict of interest; HEDGE FUND; financial conglomerate

摘要

Affiliation with a financial conglomerate may provide hedge funds with superior information about the conglomerate's lending, investment banking, and brokerage clients; such affiliation can also lead to potential conflicts with the other units of the conglomerate and exacerbate the conflict between hedge fund companies and hedge fund investors. We find that affiliated funds significantly underperform unaffiliated funds. A difference-in-difference analysis confirms the negative relation between financial industry affiliation and hedge fund performance. Affiliated funds pursue asset-gathering strategies, overweight their conducted initial public offerings/seasoned equity offerings clients' stocks, are more likely to commit legal and regulatory violations, and tend to exhibit a greater number of internal conflicts. Our results are consistent with conflict of interest exerting a negative impact on the performance of affiliated hedge funds. However, it is possible that lack of skill also contributes to the underperformance of affiliated funds.