Laskentatoimen ja rahoituksen yksikkö, 2018
Laskentatoimi ja rahoitus
Master's Degree Programme in Finance
Management outsourcing is a less studied but an important aspect in the mutual fund industry. Demand for specialized information is the main reason for the management outsourcing. This study investigates the outsourcing of mutual fund management in Finland. The purpose of this study is to examine the performance of Finnish actively managed outsourced mutual funds that are invest in equity or bonds outside Europe.
Related literature suggests that funds managed by outsourced manager underperform their internally managed counterparts. Also this study compares the performance of outsourced funds to the performance of their in-house counterparts. The performance is measured with returns over the risk-free rate and with risk-adjusted returns measured with Sharpe ratio. The data sample of this study consists of 95 Finnish mutual funds of which 36 were outsourced at least in some point of the sample period from 2007 to 2017. The funds are sorted into different fund classes by their investment country of focus to be able to compare the performance of counterpart funds. The performance of the outsourced funds is empirically investigated with pooled OLS regression. The regression is performed for the whole sample as well as for equity and for bond funds separately. Different fund classes are also investigated individually.
The results of this study indicate that Finnish outsourced mutual funds earn similar excess returns to those of Finnish in-house managed mutual funds. However, outsourced mutual funds underperform in-house funds when fund returns are adjusted with risk. These results are similar for the whole sample, equity funds and bond funds separately and after controlling fund class fixed effects.
This study suggests that outsourced managers tend to take more risk than in-house managers but they cannot compensate the risk with better performance. This might be due to outsourced mutual fund managers being less skilled or lacking effort on making investment decisions. Therefore, fund investors in Finland should be aware about the management status of the mutual funds.
Mutual fund, Outsourcing, Mutual fund performance, Management outsourcing