Retail investors do better if a fund has an institutional twin

New research from CFA Digest shows that governance and results are better in a retail fund when there is a parallel institutional class running alongside it. Investors get better risk-adjusted performance driven by stronger governance, reflecting the increased scrutiny that twin funds get. This averaged an annual 1.5%, well above the typical extra fees on retail funds. The stronger governance delivered improved efforts by managers, greater monitoring, less use of soft $, reduced fees, and reduced agency problems. There was a clear link between governance and returns. The study was done on 463 twin funds in US equities using Morningstar data over 14 years to 2009. It is summarised in CFA Digest by Biharilal Deora CFA.

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