The Company You Keep: Investment Manager Clientele and Mutual Fund Performance

Abstract

This paper examines how the composition of an investment adviser’s client base (identified via Form ADV filings) relates to the performance of its mutual funds. Investment advisers catering to institutional clients realize statistically and economically superior risk-adjusted mutual fund performance relative to retail-oriented advisers. The findings are consistent with the empirical predictions of the Gârleanu and Pedersen (2018) model for asset management markets. The results suggest that institutional clients can identify differences in investment manager skill, particularly in market segments where retail mutual fund investors face higher search costs.