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Hedge fund franchises

Publication ,  Journal Article
Fung, W; Hsieh, D; Naik, N; Teo, M
Published in: Management Science
February 1, 2021

We investigate the growth strategies of hedge fund firms. We find that firms with successful first funds are able to launch follow-on funds that charge higher performance fees, set more onerous redemption terms, and attract greater inflows. Motivated by the aforementioned spillover effects, first funds outperform follow-on funds, after adjusting for risk. Consistent with the agency view, greater incentive alignment moderates the performance differential between first and follow-on funds. Moreover, multiple-product firms underperform single-product firms but harvest greater fee revenues, thereby hurting investors while benefitting firm partners. Investors respond to this growth strategy by redeeming from first funds of firms with follow-on funds that do poorly. Empirically, the multiple-product firm has become the dominant business model for the hedge fund industry.

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Published In

Management Science

DOI

EISSN

1526-5501

ISSN

0025-1909

Publication Date

February 1, 2021

Volume

67

Issue

2

Start / End Page

1199 / 1226

Related Subject Headings

  • Operations Research
  • 46 Information and computing sciences
  • 38 Economics
  • 35 Commerce, management, tourism and services
  • 15 Commerce, Management, Tourism and Services
  • 08 Information and Computing Sciences
 

Citation

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Fung, W., Hsieh, D., Naik, N., & Teo, M. (2021). Hedge fund franchises. Management Science, 67(2), 1199–1226. https://doi.org/10.1287/mnsc.2019.3516
Fung, W., D. Hsieh, N. Naik, and M. Teo. “Hedge fund franchises.” Management Science 67, no. 2 (February 1, 2021): 1199–1226. https://doi.org/10.1287/mnsc.2019.3516.
Fung W, Hsieh D, Naik N, Teo M. Hedge fund franchises. Management Science. 2021 Feb 1;67(2):1199–226.
Fung, W., et al. “Hedge fund franchises.” Management Science, vol. 67, no. 2, Feb. 2021, pp. 1199–226. Scopus, doi:10.1287/mnsc.2019.3516.
Fung W, Hsieh D, Naik N, Teo M. Hedge fund franchises. Management Science. 2021 Feb 1;67(2):1199–1226.

Published In

Management Science

DOI

EISSN

1526-5501

ISSN

0025-1909

Publication Date

February 1, 2021

Volume

67

Issue

2

Start / End Page

1199 / 1226

Related Subject Headings

  • Operations Research
  • 46 Information and computing sciences
  • 38 Economics
  • 35 Commerce, management, tourism and services
  • 15 Commerce, Management, Tourism and Services
  • 08 Information and Computing Sciences