1. Jiang Luo, Nanyang Technological University Zheng Qiao, Nanyang Technological University Discussed by J. Jimmy Yang, Oregon State University 2012 NTU International Conference on Finance Understanding Mutual Fund Families’ Acquisitions of Fund Sponsorships

2. Contribution & Major Findings Provide empirical evidence on the acquisitions of fund sponsorships by mutual fund families Focus on “intact funds” which represent a large proportion of mutual fund M&As, but received little attention in the literature Findings  Those acquisitions destroy fund performance of acquired funds (potential conflict of interest)  No evidence of enhancing liquidity, lowering fees, or expanding investment opportunity set  Fund managers in the same family seem to coordinate in selecting stocks December 7, 2012 2 Jimmy Yang, Oregon State University

3. Comments and suggestions December 7, 2012 Jimmy Yang, Oregon State University 3 Motivations  Provide differences between regular M&A and fund sponsorship acquisitions  What story? “empire building”, “deal seeking”, or “growth opportunity”  Is the poor performance related to the diversification discount documented in the M&A literature?

4. Comments and suggestions December 7, 2012 Jimmy Yang, Oregon State University 4 Data and Measurements  Provide the number of funds that are excluded due to screening and data availability  Identify an acquisition of fund sponsorships: based on management company code (6 months after and 5 months before?) – announcements available?  Fund flows are estimated – are fund flows data available?  Liquidity – measured by fund size and turnover. Can turnover ratio be used to identify shifts in portfolio compositions after acquisition?  Three performance measures: add Sharpe ratios and tests

5. Comments and Suggestions December 7, 2012 Jimmy Yang, Oregon State University 5 Interpretation of results  Based on Table II: results from three performance measures are not consistent, but conclusions are drawn from the OAR results  Poor post-acquisition performance for all but the merged acquired funds – any potential explanations?  Figure 1: inflow of funds for intact incumbent funds and outflow of funds for intact acquired funds prior to acquisition (inconsistent with the better pre-acquisition performance of acquired funds) – any explanations?  To test the “performance and fund flow) story: look into the post- acquisition fund flows of combined funds

6. Comments and Suggestions December 7, 2012 Jimmy Yang, Oregon State University 6 Interpretation of results  Based on Table IV: expense ratios drop following acquisition for merged acquired funds (this makes sense and is consistent with the economies of scale story)  Any explanation for the high turnover ratios (as high as 92%) for acquired funds? Incumbent funds have 24%.  Investment opportunity set: based on correlations (although statistically different, may not be economically different) CS:0.80 vs. 0.848 and OAR: 0.0046 vs. 0.0234  Conflict of interest story not clear: interests of fund family investors vs. interests of fund investors (fund outflows for both incumbent and acquired funds are observed)