Publication: Capital Commitment and Performance: The Role of Mutual Fund Charges
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Date
2022-11-02
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Cambridge University Press
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Abstract
We study how the scarcity of committed capital affects the equilibrium distribution of net alphas in the asset management industry. We propose a model of active portfolio management with different sales fee structures where committed capital is in short supply. In the model, a portfolio’s excess return is not fully appropriated by the money manager but shared with long-term investors. Empirically, we show that capital commitment allows funds to hold shares longer and take advantage of slow-moving arbitrage opportunities. Consistent with the model, funds with more committed capital generate higher value added, which, net of fees, accrues to long-term investors.
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Attribution 4,0 International
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IE Business School
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Gómez, J. P., Prado, M. P., & Zambrana, R. (2024). Capital commitment and performance: The role of mutual fund charges. Journal of Financial and Quantitative Analysis, 59(2), 727-758. https://doi.org/10.1017/S0022109022001235