Friday, April 10, 2015

Subcontracting in International Asset Management: New Evidence on Market Integration

MASSA Massimo, SCHUMACHER David
Read the working paper
INSEAD Working Paper 2015/29/FIN

We study the decisions of international asset managers to outsource portfolio management of their funds and we link these decisions to market integration. Using a structural model of selfselection, we endogenize the decision to outsource in a comprehensive sample of international mutual funds and identify both performance and non‐performance related determinants of outsourcing. Outsourcing fund management generates net positive gains to fund families of around 8‐17 bp per month despite the ex‐post underperformance of outsource funds relative to inhouse funds. Then, we establish that the performance improvements from outsourcing are directly related to segmentation in the underlying asset markets.