20 May 2015

The Scope of International Mutual Fund Outsourcing

Does the outsourcing of mutual fund management increase fees and damage performance?

Mutual fund management involves a variety of functions, and some of these functions may be outsourced to external service providers: advisors, custodians, administrators, and transfer agent.  An important question for practitioners and academics alike is whether outsourcing affects portfolio selection and thus ultimately operating risk and performance of funds. While operating risk cannot be measured directly, an indirect way is to examine the impact on the risk-return profile of funds; i.e., do funds with more outsourced services have a different risk-return profile and efficiency level from funds with internal services?

This paper titled, “The Scope of International Mutual Fund Outsourcing: Fees, Performance and Risks” examines for the first time the effect of outsourcing on fund fees, in particular, the causes and consequences of mutual fund outsourcing to different types of service providers. Eventually this may impact the level of fees as more players get involved along the chain of operations, as well as potentially generating performance inefficiencies.

by Armin Schwienbacher, Douglas Cumming, Feng Zhan

  • John Carroll University
  • University of Lille SKEMA School of Business
  • York University Schulich School of Business