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Finance Seminar

Author:

• Miguel A. Ferreira
  Nova School of Business and Economics, ECGI

• Pedro Matos
  University of Virginia

• Pedro Pires
  Nova School of Business and Economics

We study the performance of equity mutual funds run by asset management divisions of commercial banking groups using a worldwide sample. We show that bank-affiliated funds underperform unaffiliated funds by 70 basis points per year. Consistent with conflicts of interest, the underperformance of affiliated funds is more pronounced among funds with larger stock holdings of the bank’s lending clients. Disinvestments of asset management divisions by banking groups and placebo tests using international and passive funds support a causal interpretation of the results. Our findings suggest that affiliated funds support their lending division operations at the expense of fund investors.