Dr G. (Gelly) Fu MSc

This thesis aims to enrich our understanding of the investment behaviour of mutual fund managers. In particular, each study focuses on a situation in which managers are incentivized to act in ways that are actually against the best interest of their investors. The first study shows that mutual fund managers managing multiple mutual funds at the same time tend to spread out risky investment bets among their funds instead of diversifying within each individual fund. This strategy can lead to uninformed investors taking on unwanted undiversified risk. The second study shows that mutual fund managers mainly prioritize the smallest fund that they manage, while their larger funds do not receive as much attention. Thus, investors in the smallest funds do enjoy relatively high performance, but this is at the cost of the investors of the larger funds. The third study shows that mutual fund families use cross-subsidization to penetrate new market segments in order to cater to a wider investor audience. This strategy entails sacrificing the performance of the families’ older established funds in order to boost the performance of funds in the new market. By identifying these agency problems that can harm certain groups of investors, this thesis can serve as a guidance in resolving potential conflicts of interest in the mutual fund industry in order to protects its investors