Leading the Way? External Lead Managers and Institutional Equity Fund Performance in Korea

Abstract

It is becoming common for institutional sponsors to receive outside help in manager selection by delegating the decisionmaking to external lead managers. Yet, performance implications of this recent trend have not hitherto been examined. We fill the gap with a unique dataset compiled by Korean institutional sponsors, which enables a detailed comparison of domestic equity managers selected by the sponsors against those by lead managers. We find managers chosen by lead managers to significantly outperform in most measures. Further evidence suggests this outperformance emanates primarily from the lead managers¶DELOLW\WRGHWDFK themselves from internal issues within the sponsor organization.