Leonard Kostovetsky and Jerold Warner, the authors of the study You’re Fired! New Evidence on Portfolio Manager Turnover and Performance, which was published in the August 2015 issue of the Journal of Financial and Quantitative Analysis, contribute to the literature on the performance of money managers by examining managerial turnover at both internally managed mutual funds as well as mutual funds managed externally by subadvisors.
The authors’ working hypothesis was that the “turnover of subadvisors provides sharper tests of any underlying board and sponsor monitoring because these data are heavily weighted toward involuntary turnover. Departures by in-house managers are more likely to be voluntary because good performance gives in-house managers better opportunities, such as joining hedge funds.” About 15% of mutual funds employ subadvisors.
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