Interfund lending in mutual fund families: Role in liquidity management
نویسندگان
چکیده
Although the 1940 Act restricts interfund lending within a mutual fund family, families can apply for regulatory exemptions to participate in interfund lending. We find that heterogeneity in portfolio liquidity and investor flows across funds, funds’ investment restrictions, and governance mechanisms influence the fund family’s decision to apply for interfund lending. We document several costs and benefits of interfund lending. Costs include lower sensitivity of managers’ turnover to past performance and greater investor withdrawal for poorly governed funds. Benefits include funds being able to hold more illiquid and concentrated portfolios, and being less susceptible to runs. JEL Classification: G18, G23, G32
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