The Impact Of Management Mode On Fund Performance, Risk And Investment Style

In recent years, team management has become increasingly popular in the mutual fund industry. In this paper, we analyze team management along four broad dimensions. First, we examine potential determinants explaining a fund's management structure. Second, we analyze potential effects of fund management on fund performance, risk, and investment style. Findings show that the fund management choice is a strategic decision, made usually uniformly for all funds at the fund family level. Particularly, the extent and complexity of the tasks fund managers face determine management structure, with more teams in segments that the management behavior of team and individual managers differ systematically.On the full sample there is no performance difference between team funds and single funds, however on the top 20% sample the coefficient on the team dummy is significant at 5% level. These suggest that fund management teams are moderately less efficient than single managers. They can either not realize potential benefits of having more than one manager running the fund, or these benefits are overcompensated by additional costs and team specific biases.Then we find a significantly positive influence of the team dummy on fund inflows. The higher inflows into team-managed funds might explain why so many fund families have used the team management approach in recent years, although the (small) differences in fund performance documented above would rather suggest to employ single managers.The results on the effect of fund management structure on fund risk taking in section VI indicate that teams take on less (unsystematic) risk than single managers and change their risk to a lesser extent as response to their prior performance. We also found that funds managed by teams adjust their risk to a less extent as response to prior performance.In their investment style we find that teams'investment style is more consistent over time. Thus, our result on the managerial behavior of teams with respect to risk taking as well as investment style yield support for the diversification-of-opinion hypothesis. We do not find any evidence in favor of the group-polarization theory or the risk-shift hypothesis that predict that teams make more extreme and risky decisions than single managers.Looking at fund performance, we find some, albeit only weak, evidence that team management has a negative impact on fund performance. However, team-managed funds are more persistent in their performance over time. Fund investors seem to care about fund management structure. Our findings show that team-managed funds experience significantly higher inflows and more consistent investment styles.