Management sub-advising in the mutual fund industry Articles uri icon

publication date

  • March 2018

start page

  • 567

end page

  • 587


  • 3


  • 127

International Standard Serial Number (ISSN)

  • 0304-405X

Electronic International Standard Serial Number (EISSN)

  • 1879-2774


  • This is a study of how contractual mechanisms can mitigate agency conflicts in sub-advised mutual funds. Sub-advising contracts allow fund families to expand their product offerings to include new investment styles and thereby gain market share. We show that costly contractual arrangements, such as co-branding, multi-advising, and performance-based compensation, can mitigate agency conflicts in outsourcing and protect investors from potential underperformance. Fund families will find it cost-effective to implement such incentive mechanisms only when investors are sophisticated in assessing manager skill. The findings help to explain why a large percentage of fund families outsource their funds to advisory firms.


  • Business


  • outsourcing; sub-advisor; mutual funds; management company; incentive contracts; fund performance; market share; agency issue