tailieunhanh - Valuing Mutual Fund Companies

Stock-taking occurred in different forms: through the presentation of the World Bank’s and of the Inter-American Development Bank’s studies on social funds, as well as through many individual interventions by social funds’ managers during the plenary sessions and in working groups. Ten original papers were also presented by relevant practitioners on specific topics related to social funds’ design, management, and implementation. These papers provide an overview of current design and implementation challenges and concerns facing social funds. More than two of the workshop’s four days were devoted to group discussions, organized by topic, constituency, or regional perspective. It was in these discussion groups that the consensus and common. | Valuing Mutual Fund Companies1 Jacob Boudoukha Matthew Richardsonb Richard Stantonc and Robert F. WhitelaW May 22 2003 JEL classification G14. 1oIDC NYU and NBER 6NYU and NBER . Berkeley. Contact Prof. Robert Whitelaw NYU Stern School of Business 44 W. 4th St. New York NY 10012 212 998-0338 rwhitela@ Valuing Mutual Fund Companies ABSTRACT Combining insights from the contingent claims and the asset-backed securities literatures we study the economics of value creation in the asset management business. In particular we provide a theoretical model and a closed form formula for the value of fund fees in the presence of the well known flow-performance relation giving rise to interesting nonlinearities and volatility-related effects. The theoretical model sheds light on the role of fees asset growth asset and benchmark volatility and the intensity of the flow-performance relation. To better understand the role of changing fund characteristics such as age and size on the fund value and fund risk we estimate the empirical relation between returns and flows conditional on these characteristics for various asset classes. We study these effects using Monte Carlo simulations for various economically meaningful parameter values for specific asset classes. Measuring value as a fraction of assets under management we find that both value and risk systematic and idiosyncratic decline in size and age. In addition value is a complex non-monotonic function of the fee charged on the fund. 1 1 Introduction At the end of 2002 the mutual fund industry managed over 11 trillion dollars of assets worldwide according to data from the Investment Company Institute. Given the size of this industry it is surprising that no literature has emerged which values mutual fund revenue streams. The literature to date has focused on documenting the performance of mutual funds while a more recent literature links fund flows to this While there is considerable debate on the .