Outsourcing of Mutual Funds’ Non-Core Competencies

Fund families strategically shape their member funds' behavior to target specific groups of investors with varying performance and service needs. In this paper I introduce a new measure to identify performance-oriented and service-oriented funds. Matching theories from the industrial organization literature, I suggest that funds whose families outsource the execution of services unrelated to portfolio management to external specialists are the same funds with an emphasis on their core business portfolio management. I find an outperformance of service-outsourced funds that is robust to a range of alternative explanations. Moreover, I show evidence that service-outsourced funds indeed possess superior investment skills