Do Families Matter in Institutional Money Management Industry : The Case of New Portfolio Openings

This study investigates whether family level analysis matters in the institutional money management industry by examining new portfolio openings in a large survivorship bias free sample of institutional money management families. I examine whether low-skill families that open new portfolios are successful in attracting significant new cash flows despite poor past performance in other family funds. I find that they are successful in attracting significant new cash flows. I also examine the future performance of these new funds. Using time varying alphas, I find that the fund families performing below average in one year create portfolios that on average underperform for up to three subsequent years. I call this combination of results the family new fund paradox. It is a paradox, because the fund flows indicate that institutional investors are not collecting and/or using information about prior family performance that would be useful in predicting the future performance of these new funds. My findings are robust to the known persistence among the worst performing families