Under One Roof: A Study Of Simultaneously Managed Hedge Funds And Funds Of Hedge Funds
Keywords
Agency problem; Funds of hedge funds; Hedge funds; Simultaneous management
Abstract
We examine the simultaneous management of hedge funds and funds of hedge funds. Hedge fund firms can choose to simultaneously offer a fund of hedge funds. Similarly, fund of hedge funds firms can simultaneously offer a hedge fund. We find that although superior past performance and larger size drive the decision to become simultaneous for hedge fund firms, past flows drive the decision for fund of hedge funds firms. The effects of simultaneity are also different. When hedge fund firms start funds of hedge funds, we find evidence of value creation, driven by better management of economies of scale and cross learning. In contrast, fund of hedge funds firms starting hedge funds destroy value due to expansion beyond core competencies and agency problems. We find that firms learn about their competencies in the two business lines and discontinue underperforming simultaneity arrangements to focus on the business where they perform better.
Publication Date
3-1-2016
Publication Title
Management Science
Volume
62
Issue
3
Number of Pages
722-740
Document Type
Article
Personal Identifier
scopus
DOI Link
https://doi.org/10.1287/mnsc.2014.2126
Copyright Status
Unknown
Socpus ID
84961842042 (Scopus)
Source API URL
https://api.elsevier.com/content/abstract/scopus_id/84961842042
STARS Citation
Agarwal, Vikas; Lu, Yan; and Ray, Sugata, "Under One Roof: A Study Of Simultaneously Managed Hedge Funds And Funds Of Hedge Funds" (2016). Scopus Export 2015-2019. 3541.
https://stars.library.ucf.edu/scopus2015/3541