Horses for courses: Fund managers and organizational structures

We model and test the relations between the team management of mutual funds, managers’ ability, performance, and holdings. Our model predicts that team-managed funds perform better and behave more conservatively than single-manager funds. However, the effect of team-management is masked in equilibrium since high ability managers rationally self-select into single-manager funds. Consistent with the model’s prediction, we find that team-managed funds perform better and deviate less from their benchmark allocations than single-manager funds with the same characteristics. These differences are marked after we control for the endogenous self-selection of managers