Do Prime Brokers Matter in the Search for Informed Hedge Fund Managers?

• 成果类型: Article
• 署名作者: Aragon, George O.; Chung, Ji-Woong; Kang, Byoung Uk
• 署名单位: Arizona State University; Arizona State University-Tempe; Korea University; Hong Kong Polytechnic University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4536
• 发表日期: 2023
• 页码: 4932-4952
• 关键词: HEDGE FUNDS; Prime brokers; search frictions; Due diligence; funds of funds

摘要

Using the setting of funds of hedge funds (FoFs), we show that prime brokers (PBs) facilitate investors' search for informed hedge fund managers. We find that FoFs exhibit PB bias, a disproportionate preference for hedge funds serviced by their connected PBs. This PB bias is strongerwhen the cost of hedge fund due diligence is higher relative to capital and when the FoF's management firm generates higher prime brokerage fees. PB bias also predicts FoF performance: the highest PB-bias quartile outperforms the rest by 2.08%-2.45% per annumafter adjusting for differences in their risks.