Attracting flows by attracting big clients
Subtitle: conflicts of interest and mutual fund portfolio choice
By: Lauren H. Cohen, Breno Schmidt .
Contributors: Schmidt, Breno; Harvard Business School
Series: Working paper / Harvard Business School -- 08-054; Working paper (Harvard Business School) -- 08-054
Publisher: Harvard Business School
Published: 2008
Place of publication: Boston]
Language: eng
Number of pages: 45
Description: We explore a new channel for attracting inflows using a unique dataset of corporate 401(k) retirement plans and their mutual fund family trustees. Families secure substantial inflows by being named trustee of a 401(k) plan. This affords the plan sponsor potential influence on the family's portfolio decisions. Consistent with this, we find that family trustees significantly overweight their 401(k) client firm's stock. Trustee overweighting is more pronounced when the conflict of interest of the trustee family is more severe and when other mutual funds are selling the client firm's stock. This overweighting is not explained by superior information. We quantify a potentially large benefit to the 401(k) sponsor firm of having its price propped up by its trustee fund's more severe overweighting. We also estimate the resulting loss to mutual fund investors, which can be large in some cases.
Notes: "January 2008"--Publisher's web site.

Includes bibliographical references.