Risk management and team-managed mutual funds

Abstract

This paper relies on mutual fund industry data to examine the consequences of a specific risk-management policy. The focus is on the decision by a mutual fund sponsor to employ a fund management team instead of a solo manager. The analysis shows that team-managed funds tend to have (1) more reliable investment styles; (2) less tournament behaviour; and (3) more stable performance over time than solo-managed funds. While risk-adjusted net returns of team-managed funds are slightly lower than those of their solo-managed counterparts, team-managed funds attract significantly more new cash flows from investors. Thus, the paper provides empirical evidence that there is not necessarily a conflict between the objectives of risk management and value maximisation in financial institutions.