Business Commons^™

Public Hedge Funds, Lin Sun, Melvyn Teo

Research Collection Lee Kong Chian School Of Business

Hedge funds managed by listed firms significantly underperform funds managed by unlisted firms. The underperformance is more severe for funds with low manager deltas, poor governance, and no manager co-investment, or managed by firms whose prices are sensitive to earnings news. Notwithstanding the underperformance, listed firms raise more capital and harvest greater fee revenues than do comparable unlisted firms. The results cannot be explained by endogeneity, backfill bias, serial correlation, or manager manipulation, and are consistent with the view that, for asset management firms, going public weakens the alignment between ownership, control, and investment capital, thereby engendering conflicts of interest.