Growing Beyond Performance

Abstract

The mutual fund literature has largely focused on identifying fund manager skills but finds little evidence of the existence of persistent superior performance. Nonetheless, mutual fund companies do not allocate all human resources to portfolio management; rather, a significant share of employment in the U.S. mutual fund companies is devoted to marketing and sales (21\% on average). We find that mutual fund companies that have higher marketing employee ratio exhibit higher subsequent asset growth, which is not driven by better performance. Two channels together contribute to this phenomenon: (1) marketing employees maintain the convexity of the flow-to-performance relationship as the company grows, and (2) fund companies that allocate more human capital to marketing simultaneously choose to set higher variability in performance at both the fund and company levels. Allocating human capital toward marketing is a tactic to further spur growth in the lack of performance persistence.

Keywords: Human Capital, Marketing Employees, Flow-to-Performance Sensitivity, Variability