Portfolio Manager Ownership and Fund Performance:

This paper documents the range of portfolio manager ownership in the funds they manage and examines whether higher ownership is associated with improved future performance. Almost half of all managers have ownership stakes in their funds, though the absolute investment is modest. Future risk-adjusted performance is positively related to managerial ownership, with performance improving by about three basis points for each basis point of managerial ownership. These findings persist after controlling for various measures of fund board effectiveness. Fund manager ownership is higher in funds with better past performance, lower front-end loads, smaller size, longer managerial tenure, and funds affiliated with smaller families. It is also higher in funds with higher board member compensation and in equity funds relative to bond funds. Future performance is positively related to the component of ownership that can be predicted by other variables, as well as the unpredictable component. Our findings support the notion that managerial ownership has desirable incentive alignment attributes for mutual fund investors, and indicate that the disclosure of this information is useful in making portfolio allocation decisions. _________________________ We would like to thank an anonymous referee, Vikas Agarwal, Joao Cocco, Francisco Gomes, Lars Lochstoer, Anna Pavlova, Bill Schwert, Peter Tufano, Raman Uppal, and seminar participants at Georgia Institute of Technology, London Business School, the New York Fed, Stanford University, and the University of Arizona for helpful comments and suggestions. Financial support for this project was provided by the RAMD fund at London Business School. Corresponding author. London Business School, Sussex Place, Regent’s Park, London NW1 4SA, United Kingdom. Tel: +44 20 7706 6962, Fax: +44 20 7724 3317, e-mail: [email protected]. Portfolio Manager Ownership and Fund Performance