Mutual funds that outsource their fund management are likely to have lower subscription fees and better performance.
The association between outsourcing of advisory services and performance is more pronounced for funds belonging to bank-managed groups than funds of asset management firms, the Swift Institute, a branch of the interbank communication network Swift, found.
Its research covers a broad range of outsourcing by mutual funds including transfer agency, administration and custody.
The funds that outsource are more likely to have 11% - 14% lower subscription fees relative to the overall average fees in the sample data.
Swift’s findings are based on responses from over 13,000 mutual funds domiciled in Europe.
Swift found outsourcing of various services is very common, with 12% of funds using external advisors, 41% using external administrators, 45% using external transfer agents, and 58% using external custodians. All funds outsource to external trustees and auditors.
Outsourcing advisory services is associated with higher risk-adjusted performance, while outsourcing of administrator, transfer agent, and custodian services is unrelated to risk.
Peter Ware, director of the Swift Institute says: “Most academic research to date has been focused on the US mutual fund space and on middle/back office outsourcing. This is one of the first studies that looks at Europe, and takes into account outsourcing of front office activities, such as advisory services.”
The research was produced for the Swift Institute by: Douglas Cumming of York University, Armin Schwienbacher of Université de Lille and Feng Zhan of John Carroll University.
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