Prudent man or agency problem? On the performance of insurance mutual funds |
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| Affiliation: | 1. Cameron School of Business, University of North Carolina at Wilmington, Wilmington, NC 28403, USA;2. Department of Finance, Eller College of Management, University of Arizona, Tucson, AZ 85721, USA;3. College of Business Administration, University of Rhode Island, Kingston, RI 02881, USA;1. Cameron School of Business, University of North Carolina at Wilmington, Wilmington, NC 28403, USA;2. Department of Finance, Eller College of Management, University of Arizona, Tucson, AZ 85721, USA;3. College of Business Administration, University of Rhode Island, Kingston, RI 02881, USA |
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| Abstract: | Active equity mutual funds managed by insurance companies underperform peer funds by over 1% per year. There is no evidence that insurance funds make less risky investments; instead they have lower risk-adjusted returns and their fund flows are less sensitive to performance when they perform poorly. Across insurance funds, those with heavy advertising, directly established by insurers or using parent firms' brandnames, and those whose managers simultaneously manage substantial non-mutual-fund assets, are more likely to underperform. We conclude that insurers' efforts to cross-sell mutual funds aggravate agency problems that erode fund performance. |
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