Institutional Investors and Mutual Fund Governance: Evidence from Retail–Institutional Fund Twins
Open accessAbstract
Advisors often manage multiple versions of a fund. These “twins” have the same manager and similar performance but are sold to different investors with differing abilities to select and monitor managers. Comparing investor flows in retail and institutional twins, we find that institutional investors are more sensitive to high fees and poor risk-adjusted performance. Consistent with the reduction of agency problems from greater monitoring, retail funds with an institutional twin outperform other retail funds by 1.5% per year. After the institutional twin is created, expenses decrease while measures of managerial effort at the retail fund increase.
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More investor oversight by institutional investors is especially helpful for high-sustainable funds during a market crash or pandemic.
“This suggests that more investor oversight provided by institutional investors (Evans & Fahlenbrach, 2012) is especially helpful for high-sustainable funds during a market crash/pandemic.”
From Sustainable mutual fund performance and flow in the recent years through the COVID-19 pandemic (2022) · cites this paper as Evans & Fahlenbrach, 2012
Institutional share classes have higher minimum investment requirements and lower fees, attract more sophisticated investors who monitor fund managers better, and this results in superior performance.
“These share classes have higher minimum investment requirements and lower fees. They attract more sophisticated investors who monitor the fund managers better. This results in superior performance (Evans & Fahlenbrach, 2012).”
From Sustainable mutual fund performance and flow in the recent years through the COVID-19 pandemic (2022) · cites this paper as Evans & Fahlenbrach, 2012
Greater investor oversight by institutional investors is especially helpful for high-sustainable funds during a market crash or pandemic.
“suggesting that more investor oversight provided by institutional investors (Evans & Fahlenbrach, 2012) is especially helpful for the high-sustainable funds during a market crash/pandemic.”
From Sustainable mutual fund performance and flow in the recent years through the COVID-19 pandemic (2022) · cites this paper as Evans & Fahlenbrach, 2012
Retail investors predominantly react to simple signals such as past return measures in their investment decisions.
“Retail investors predominantly react to simple signals such as past return measures in their investment decisions (see, e.g., Del Guercio & Tkac, 2002;Evans & Fahlenbrach, 2012;Salganik-Shoshan, 2016).”
From A review on ESG investing: Investors' expectations, beliefs and perceptions (2024) · cites this paper as Evans & Fahlenbrach, 2012
Institutional investors are less financially constrained and more sophisticated in their investment strategies than retail investors.
“Compared to retail investors, institutional investors are also less financially constrained and more sophisticated in their investment strategies (see Evans and Fahlenbrach (2012)).”
From Sustainability Preferences Under Stress: Evidence from COVID-19 (2020) · cites this paper as Evans and Fahlenbrach (2012)
Institutional investors are less likely to turn away from sustainable investments during market turbulence and economic downturns compared to retail investors.
“All of this makes institutions less likely to turn away from sustainable investments during market turbulence and economic downturns, compared to retail investors.”
From Sustainability Preferences Under Stress: Evidence from COVID-19 (2020) · cites this paper as Evans and Fahlenbrach (2012)
Institutional investors operate under fiduciary duties, benchmark tracking, and career and fee considerations.
“Institutional investors operate under fiduciary duties, benchmark tracking, and career and fee considerations”
From The origins of <scp>ESG</scp> demand: Evidence from retail and institutional investor responses to environmental rankings (2026) · cites this paper as Evans & Fahlenbrach, 2012
Cites
On Persistence in Mutual Fund Performance
Carhart, M. M. (1997) · The Journal of Finance · doi:10.1111/j.1540-6261.1997.tb03808.x · Cited by 17,283 · see citing works
Mutual Fund Flows and Performance in Rational Markets
Berk, J. B., & Green, R. C. (2004) · Journal of Political Economy · doi:10.1086/424739 · Cited by 2,083 · see citing works
Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization
Chen, J., Hong, H., Huang, M., & Kubik, J. D. (2004) · American Economic Review · doi:10.1257/0002828043052277 · Cited by 1,430 · cited 1× · see citing works
“This result suggests that once the institutional twin is created, risk-adjusted performance of the twin retail fund significantly improves, despite the negative impact of increased assets under management due to the scale diseconomies documented by Chen et al. (2004) and others.”
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A review on ESG investing: Investors' expectations, beliefs and perceptions
Kräussl, R., Oladiran, T., & Stefanova, D. (2024) · Journal of Economic Surveys · doi:10.1111/joes.12599 · Cited by 175 · see citing works
The impact of the Morningstar Sustainability Rating on mutual fund flows
Ammann, M., Bauer, C., Fischer, S., & Müller, P. (2019) · European Financial Management · doi:10.1111/eufm.12181 · Cited by 145 · see citing works
Sustainability Preferences Under Stress: Evidence from COVID-19
Döttling, R., & Kim, S. (2020) · SSRN Working Paper · doi:10.2139/ssrn.3656756 · Cited by 161 · see citing works
Sustainable mutual fund performance and flow in the recent years through the COVID-19 pandemic
Fang, F., & Parida, S. (2022) · International Review of Financial Analysis · doi:10.1016/j.irfa.2022.102387 · Cited by 51 · see citing works
Discretionary Information in ESG Investing: A Text Analysis of Mutual Fund Prospectuses
Andrikogiannopoulou, A., Krueger, P., Mitali, S. F., & Papakonstantinou, F. (2022) · SSRN Electronic Journal · doi:10.2139/ssrn.4082263 · Cited by 18 · see citing works
You, L., & Payne, J. (2026) · Review of Financial Economics · doi:10.1002/rfe.70039
- Authors
- Evans, R. B., & Fahlenbrach, R.
- Affiliations
- University of Virginia (US)
- École Polytechnique Fédérale de Lausanne (CH)
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 2012-10-22
- Volume
- 25
- Issue
- 12
- Pages
- 3530-3571
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W3121512739
- Cited by
- 189
- References
- 3
- Citations by year
- 2026: 14 · 2025: 21 · 2024: 15 · 2023: 13 · 2022: 25 · 2021: 27 · 2020: 13 · 2019: 13 · 2018: 12 · 2017: 13 · 2016: 7 · 2015: 7 · 2014: 6 · 2012: 1
- FWCI
- 7.34
- Type
- journal article
- Language
- en
- Open access
- green
- infoscience.epfl.ch
- Locations
- Review of Financial Studies (publishedVersion)
- RePEc: Research Papers in Economics (publishedVersion)
- Infoscience (Ecole Polytechnique Fédérale de Lausanne) (submittedVersion)
- Infoscience (Ecole Polytechnique Fédérale de Lausanne) (submittedVersion, cc-by-nc-nd)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Business, Management and Accounting › Accounting › Financial Analysis and Corporate Governance
- Keywords
- mutual fund governance, institutional investors, retail investors, fund fees, risk-adjusted performance, principal-agent problem, investor monitoring, fund performance, managerial effort, fund expenses
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