Hedge Fund Franchises

We investigate the growth strategies of hedge fund firms. We find that firms with successful first funds are able to launch follow-on funds that charge higher performance fees, set more onerous redemption terms, and attract greater inflows. Motivated by the aforementioned spillover effects, first funds outperform follow-on funds, after adjusting for risk. Consistent with the agency view, greater incentive alignment moderates the performance differential between first and follow-on funds. Moreover, multiple-product firms underperform single-product firms but harvest greater fee revenues, thereby hurting investors while benefitting firm partners. Investors respond to this growth strategy by redeeming from first funds of firms with follow-on funds that do poorly. Empirically, the multiple-product firm has become the dominant business model for the hedge fund industry. This paper was accepted by Tyler Shumway, finance.

• 저널Management Science · 67(2) · 1199–1226
• 토픽Corporate Finance and Governance · Accounting
• DOI10.1287/mnsc.2019.3516
• 저자William Fung, David A. Hsieh, Narayan Y. Naik, Melvyn Teo