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Understanding Mutual Fund Families’ Acquisitions of Fund Sponsorships.pptx

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Understanding Mutual Fund Families’ Acquisitions of Fund Sponsorships.pptx Powered By Docstoc
					Understanding Mutual Fund Families’
 Acquisitions of Fund Sponsorships

       Jiang Luo, Nanyang Technological University
      Zheng Qiao, Nanyang Technological University

   Discussed by J. Jimmy Yang, Oregon State University

       2012 NTU International Conference on Finance
    Contribution & Major Findings
     Provide empirical evidence on the acquisitions of fund
      sponsorships by mutual fund families
     Focus on “intact funds” which represent a large proportion of
      mutual fund M&As, but received little attention in the
      literature
     Findings
    Ø Those acquisitions destroy fund performance of acquired funds (potential
      conflict of interest)
    Ø No evidence of enhancing liquidity, lowering fees, or expanding investment
      opportunity set
    Ø Fund managers in the same family seem to coordinate in selecting stocks


2   Jimmy Yang, Oregon State University                               December 7, 2012
    Comments and suggestions
     Motivations
    ØProvide differences between regular M&A and fund
     sponsorship acquisitions
    ØWhat story? “empire building”, “deal seeking”, or “growth
     opportunity”
    ØIs the poor performance related to the diversification
     discount documented in the M&A literature?




3   Jimmy Yang, Oregon State University                December 7, 2012
    Comments and suggestions
     Data and Measurements
    ØProvide the number of funds that are excluded due to
     screening and data availability
    ØIdentify an acquisition of fund sponsorships: based on
     management company code (6 months after and 5 months
     before?) – announcements available?
    ØFund flows are estimated – are fund flows data available?
    ØLiquidity – measured by fund size and turnover. Can
     turnover ratio be used to identify shifts in portfolio
     compositions after acquisition?
    ØThree performance measures: add Sharpe ratios and tests


4   Jimmy Yang, Oregon State University                December 7, 2012
    Comments and Suggestions
     Interpretation of results
    Ø Based on Table II: results from three performance measures are
      not consistent, but conclusions are drawn from the OAR results
    Ø Poor post-acquisition performance for all but the merged acquired
      funds – any potential explanations?
    Ø Figure 1: inflow of funds for intact incumbent funds and outflow
      of funds for intact acquired funds prior to acquisition (inconsistent
      with the better pre-acquisition performance of acquired funds) –
      any explanations?
    Ø To test the “performance and fund flow) story: look into the post-
      acquisition fund flows of combined funds

5   Jimmy Yang, Oregon State University                        December 7, 2012
    Comments and Suggestions
     Interpretation of results
    Ø Based on Table IV: expense ratios drop following acquisition for
      merged acquired funds (this makes sense and is consistent with the
      economies of scale story)
    Ø Any explanation for the high turnover ratios (as high as 92%) for
      acquired funds? Incumbent funds have 24%.
    Ø Investment opportunity set: based on correlations (although
      statistically different, may not be economically different) CS:0.80
      vs. 0.848 and OAR: 0.0046 vs. 0.0234
    Ø Conflict of interest story not clear: interests of fund family
      investors vs. interests of fund investors (fund outflows for both
      incumbent and acquired funds are observed)

6   Jimmy Yang, Oregon State University                      December 7, 2012

				
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