The geography of subadvisors, managerial structure, and the performance of international equity mutual funds

Markus Broman, Michael Densmore, Pauline Shum Nolan

Research output: Contribution to journalArticlepeer-review

Abstract

We study whether subadvising abroad provides an information advantage that improves the performance of international equitymutual funds.We find that it does not. In fact, internationally outsourced funds underperform on a risk-Adjusted basis by up to 162 bps annually. The underperformance is concentrated in funds managed by single subadvisors, who are less likely to be terminated after poor performance compared to fundswithmultiple subadvisors.We dissect fund performance by the location of its subadvisors and find that international subadvisors underperform primarily in their local holdings. Finally, we show that the industry is nonetheless on a path toward equilibrium. (JEL G11, G12, G14, G15, G23).

Original languageEnglish (US)
Pages (from-to)343-374
Number of pages32
JournalReview of Asset Pricing Studies
Volume13
Issue number2
DOIs
StatePublished - Jun 1 2023
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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