Hedge Fund Franchises

We investigate the growth strategies of hedge fund firms. find that firms with successful first funds are able to launch follow-on charge higher performance fees, set more onerous redemption terms, and attract greater inflows. Motivated by aforementioned spillover effects, outperform funds, after adjusting for risk. Consistent agency view, incentive alignment moderates differential between funds. Moreover, multiple-product underperform single-product but harvest fee revenues, thereby hurting investors while benefitting firm partners. Investors respond this strategy redeeming from do poorly. Empirically, has become dominant business model industry. This paper was accepted Tyler Shumway, finance.