Portfolio Manager Ownership and the Pricing of Closed-End Funds

We examine the relationship between portfolio manager ownership, closed-end fund premiums/discounts, and future returns. Using a sample of 592 closed-end funds in 2005, representing 95% of the entire industry, we find that fund manager ownership has a positive and economically significant impact on fund premiums and future fund performance measured using both NAV and price returns. Furthermore, a number of board level characteristics, including the fraction of independent directors and directors on the board with financial expertise, are related to premiums and returns. These findings add to our understanding of the closed-end fund discount puzzle and suggest that portfolio manager ownership aligns the interests of fund managers and investors. * We would like to thank Don Cassidy (formerly at Lipper-Reuters) for sharing some of the data employed in this study. We are grateful to Richard Brealey, Magnus Dahlquist, Tarun Ramadoria, and seminar participants at London Business School and the University of South Florida for helpful comments and suggestions. Portfolio Manager Ownership and the Pricing of Closed-End Funds