You Learn When It Hurts: Evidence in the Mutual Fund Industry

This paper aims to contribute to the lack of research on the learning process of mutual fund markets. The empirical design is focused on the ability of the Spanish equity mutual fund industry to learn from its important errors. The choice of this industry is justified by both its relevance in the European mutual fund markets and some specific characteristics, such as the concentration and the banking control of the industry, which may affect the learning process. Our main objectives are to identify important trading errors in mutual fund management by applying three independent filters based on the relative importance of each decision, and then testing the evolution of these errors both at the industry level and at the fund family level. We apply the dynamic model of generalized method of moments (GMM), and we find an overall significant decrease in the percentage of important trading errors over time, thereby providing evidence of the global learning process of the industry. In addition, we find that a large number of fund families drive this evidence. Finally, we obtain that the family size and its dependence on financial groups do not seem to play significant roles in explaining the learning process. Therefore, we conclude that fund managers have incentives to learn from their important trading errors, in order to avoid them in future decisions, due to their serious negative consequences on fund performance, regardless of the characteristics of the families to which they belong.

The Lost Decade for Hedge Funds: Three Threats

The last decade has challenged the paradigm of the hedge fund industry as a unique performer. In this chapter three main factors are identified that have affected the operation of hedge funds: competition from mutual funds, the market environment, and tighter regulation. Recent trends in the financial industry have moved asset managers closer to hedge funds by introducing similar underlying strategies, such as liquid alternative funds, to directly compete with hedge funds. Such strategies can achieve performance similar to that of hedge funds, thus introducing more competition for hedge funds. Moreover, it is shown that several hedge fund styles that have traditionally worked well in crisis times—even in the last decade—are also strategies that can be replicated by liquid alternatives. Together with tighter regulation and a strong market environment, these developments continue to put pressure on the hedge fund industry. The chapter’s empirical findings add to the existing debate on the performance of hedge funds and the direct competition from liquid alternatives.

Indirect Regulation of Hedge Funds

This chapter evaluates the prevalent regulatory approaches for hedge funds. Among these are direct regulation, indirect regulation, so-called prudential hedge fund regulation, and eventually co-coordinated international cooperation. The chapter shows that indirect regulation of the hedge fund industry attains most regulatory objectives while providing the industry with sufficient freedom to operate. The chapter concludes with an examination of the benefits of indirect regulation of the hedge fund industry.

The Relationship Between Service Quality and Consumer Satisfaction Link: Does Perceived Value Have a Mediating Effect? : An Evidence from Mutual Fund Company in Jakarta

Despite the growing number of millennials and fintech having been present for some years now in mutual funds in Jakarta, the market share of PT PAM Indonesia has not increased. The number of unhappy customers reflected by the number of inactive customers has been increased to 43% of its total customers. due to the disappointment with the company’s services. This study is investigating the influence of service quality on consumer satisfaction and consumer perceived value as a mediating variable in mutual funds in Jakarta. This study contributes to the customer's perceived value literature by providing evidence in the mutual fund industry. To gather the primary data, in this study using a quantitative approach by sending a questionnaire to 100 millennials customers. SPSS software was used to analyze the satisfaction level in different locations and demographic factors, whilst SmartPLS3 was used to analyze the relationship between variables and to test hypotheses. The result showed that consumer perceived value mediates the relationship between service quality on consumer satisfaction. The findings suggest to retrieve customer satisfaction, the company must improve its service quality to meet consumer perceived value especially for the millennials in the mutual fund industry.

Does the system reward investors for fraud risk? A clinical analysis

Purpose The purpose of this study is to show that despite the profound and commendable efforts of the SEC staff and many others in the legal system, aimed at combatting a billion-dollar hedge fund manager fraud, the perpetrators were effectively not held accountable for the unlawful conduct and hence did not bear the consequences of the conduct. This case highlights the presence of a significant risk that hedge fund investors are not fully accounting for and very likely not earning a commensurate premium for it. During the 1999–2002 period, Lauer and Associates inflated hedge funds’ valuations, misrepresented the holdings of the funds, shared fake portfolios with investors, did not provide reasonable basis for the excessive valuations of the investee companies and manipulated their security prices. In 2009, Lauer was found guilty of violating anti-fraud provisions of the federal securities laws and was ordered to pay US$18.9m in prejudgment interest and to surrender US$43.6m in ill-gotten gains. Despite the substantial evidence, on 11 April 2011 Lauer was acquitted in federal court, of wire fraud and conspiracy to commit securities fraud. Five other associates received light sentences. Yet investors were around US$1.0bn which were never recovered or compensated. Design/methodology/approach The study applies clinical case analysis. The study produced detailed research and analysis of the of the US based Lancer Management Group fraud case. The focus is on the consequences to investors and other stakeholders in the hedge fund industry. Findings In 2009, Lauer was found guilty of violating anti-fraud provisions of the federal securities laws and was ordered to pay US$18.9m in prejudgment interest and to surrender US$43.6m in ill-gotten gains. Despite the substantial evidence, on 11 April 2011 Lauer was acquitted in federal court, of wire fraud and conspiracy to commit securities fraud. Five other associates receive light sentences. Yet investors were around US$1.0bn. Investors’ losses were never recovered or compensated. Research limitations/implications This is a clinical case study. It is not an empirical study. Findings should be carefully construed. Practical implications This study directs hedge fund investors and industry stakeholder to the real possibility of not fraud but also to the limited efficacy of the system in terms of providing protection and compensation to investors. Investors and stakeholders must pay close attention in the due diligence process to minimize probability of fraud. Social implications Hedge fund industry fraud leads to devastating consequences to investors and obviously to their wealth and very possibly adversely impact local economy and community. Originality/value This study presents many events that show the extent of the fraud and how it was conducted. This paper shows despite the extensive effort of the regulatory and judicial system, the perpetrators of the fraud were not held accountable for their actions. This case does not point toward a macro system failure. It highlights the presence of a real risk that investors are not accounting for and very likely not earning a commensurate reward for it.