Why do Brazilian bank-affiliated mutual funds underperform?

Advisor: Ruy Monteiro Ribeiro

Co-advisor: Walter Novaes

This paper investigates financial conglomerates' participation in the Brazilian equity mutual fund industry. Using data from 2002 to 2016, we show that bank-affiliated funds underperform funds managed by stand-alone entities by 1.96\%-2.30\% per year. Moreover, we find that bank-affiliated fund managers have less incentives to take risk than independent funds'. Consistent with incentives, we show that bank-affiliated funds trade less often, try less to time the market and have portfolios more similar to the market's than independent funds. Finally, we show that differences in risk taking can be associated to 7.68-29.6\% of the performance difference between bank-affiliated and independent funds.

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