This paper documents the level of portfolio manager ownership in the funds theymanage and examines whether higher ownership is associated with improvedfuture performance. Almost half of all managers have ownership stakes in theirfunds, though the absolute investment is modest. Future risk-adjusted perform-ance is positively related to managerial ownership, with performance improving by about three basis points for each basis point of managerial ownership. Thesefindings persist after controlling for various measures of fund board effectiveness.Fund manager ownership is higher in funds with better past performance, lowerfront-end loads, smaller size, funds affiliated with smaller families, and where themanager has been in charge for a longer period of time. It is also higher in fundswith higher board member compensation and in equity funds relative to bondfunds. Future performance is positively related to the component of ownershipthat can be predicted by other variables, as well as the unpredictable component.Our findings support the notion that managerial ownership has desirable incentivealignment attributes for mutual fund investors, and indicate that the disclosure of this information is useful in making portfolio allocation decisions.
Keywords: manager ownership, fund performance, mutual fund boardJEL Classifications: G20, G30
Georgia Institute of Technology - Finance Area755 Ferst Drive Atlanta , GA 30332United Statesphone: 404-894-5110 , fax: 404-894-6030e-mail: firstname.lastname@example.org
London Business SchoolSussex PlaceRegent’s ParkLondon NW1 4SAUnited Kingdomphone: +44 20 7706 6962 , fax: +44 20 7724 3317e-mail: email@example.com
University of South FloridaTampa , FL 33620-5500United Statesemail: firstname.lastname@example.org*Corresponding Author