Does portfolio manager ownership affect fund performance ... - LTA

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LTA 2 / 0 9 • L . K u m l i n a n d V. P u t t o n e npares them with the rest of the universe. Panel B compares the characteristics of the funds withpositive managerial ownership to those with no ownership.Panel A shows that while there seems to be no significant differences in performance, thenumber of portfolio managers, expenses, size or the amount of minimum investment between thesample funds and the rest of the universe, the funds in the sample are more likely to be fromsmaller, non-bank investment fund companies than their non-sample peers. In addition, the sample funds have fewer shareholders and employ lower front-end and back-end loads. The lastfinding may result partially from the fact that the sample funds are more likely to belong to nonbankfamilies; some sdies suggest that Finnish bank-managed mutual funds charge higher feesfrom their customers than non-bank funds do [see for example Korkeamäki and Smythe(2004)].Descriptive statistics documented in Panel B suggest that on average, funds with positivemanagerial ownership have performed better than funds with no ownership the average (median)objective-adjusted return for a fund with some managerial ownership is 2.12 % (0.65%) comparedto the average of –0.07% (–0.19%) of its zero-ownership peer. Furthermore, the average (median)fund with positive managerial ownership has an objective -adjusted Sharpe of 0.24 (0.10), whilethe comparable numbers for a zero ownership fund are 0.01 and –0.05 respectively.In addition, the figures shown in Panel B suggest a couple of other differences between thefunds, which have some amount of managerial ownership, and funds with no ownership. Moreprecisely, positive ownership funds are more likely to belong to smaller families (average familyassets of € 1.207 million compared to € 3.771 million), be of smaller size (average fund size of€ 59 million compared to € 107 million), have fewer shareholders (average number of shareholders 2.472 compared to 3.977) and have lower minimum investment requirements (average minimum investment of € 24.127 compared to € 62.511). In addition, the funds with positive managerial ownership are more likely to be managed by non-bank companies than funds, which lackmanagerial ownership.4. Managerial ownership and fund performance1 0 44.1. Ownership and performanceWe next investigate whether there is a relation between the amount of managerial ownership atthe end of the year (years 2003–2005), and fund performance dring the subsequent year (years2004–2006). More precisely, we estimate both simple and multivariate regressions of performanceas a function of managerial ownership and a set of control variables. In constructing the modelswe use two different measures of fund performance and three different measures of ownership.Panel A in Table 4 shows the regression results where ownership is measured as a percentage of
D o e s p o r t f o l i o m a n a g e r o w n e r s h i p a f f e c t f u n d p e r f o r m a n c e ? …the manager’s taxable wealth and Panel B where it is measured as a percentage of the manager’staxable annual employment income. Panel C measures ownership as a percentage of the fund’stotal assets.Table 4. The ownership and performance – funds with fund manager ownership.The ordinary least squares (OLS) regression results, in which the fund performance (measured as the fund’sobjective-adjusted return and objective-adjusted Sharpe) is the dependent variable, for funds with positivemanagerial ownership. The objective-adjusted return is calculated by subtracting the return of the medianfund with the matched investment objective from the fund’s return and the objective-adjusted Sharpe bysubtracting the median Sharpe from the fund’s Sharpe. The following control variables are in percent:expenses, front-end load and back-end load, while the log is taken from the following variables: family assets,fund size, number of shareholders and the amount of minimum investment. The single manager dummy is1, if the fund is run by a single manager and otherwise 0. The bank dummy is 1, if the fund is bank-managed,and otherwise 0. The amount of ownership, the size of fund family, the size of the fund and the number ofshareholders are measured at the end of the year k (2003–2005), fund performance during year k + 1(2004–2006), and all other control variables during year k (2003–2005). In Panel A, ownership is measuredas a percent of the manager’s taxable wealth, in Panel B as a percent of the manager’s taxable income andin Panel C as a percent of the fund’s total assets. The numbers in parentheses are P-values and the asterisks(*, **, ***) indicate whether the coefficients are significant at conventional levels (10%, 5% and 1%respectively).Panel A. Regression results when ownership is measured as a percent of the manager's taxable wealthVariableObjective-adjusted returnObjective-adjusted Sharpe(i) (ii) (iii) (iv) (v) (vi)Ownership -0.11 -0.14 -0.09 -0.01 -0.02 -0.01(0.03)** (0.15) (0.22) (0.09)* (0.01)*** (0.01)***Family assets -1.23 -0.24 -0.15 -0.08(0.25) (0.84) (0.07)* (0.39)Expenses 0.21 1.46 -0.08 0.04(0.92) (0.47) (0.58) (0.80)Fund size 2.06 2.73 0.20 0.29(0.04)** (0.01)*** (0.01)*** (0.00)***Front-end load 2.34 3.93 0.26 0.38(0.49) (0.23) (0.30) (0.14)Back-end load -1.74 -4.31 -0.20 -0.32(0.55) (0.11) (0.35) (0.13)Single manager dummy -19.33 -0.87(0.00)*** (0.02)**Bank dummy 0.72 0.22(0.80) (0.30)Number of shareholders -2.32 -0.21(0.01)*** (0.00)***Minimum investment -0.85 -0.07(0.03)** (0.03)**N 60 52 52 60 52 52Adjusted R 2 0.06 0.10 0.46 0.03 0.26 0.521 0 5Continued
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