The Good, the Bad or the Expensive? Which Mutual Fund Managers Join Hedge Funds?
Does the mutual fund industry lose its best managers to hedge funds? We find that mutual funds are able to retain their best-performing managers in the face of competition from a growing hedge fund industry by allowing them to manage a hedge fund side-by-side. A mutual fund manager with poor past performance is more likely to leave the mutual fund industry. A small fraction of these poor performers find a job with smaller, relatively unestablished hedge fund companies, especially when the hedge fund industry is growing fast. Thus, surging hedge fund industry provides opportunities for poor performers to end their sagging career in the mutual fund industry by finding jobs with obscure hedge fund companies. In addition, the managers of mutual funds with greater expenses are more likely to enter the hedge fund industry. However, hedge funds do not acquire superior performance for their investors by hiring these expensive managers.
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