Investor Flows to Asset Managers: Causes and Consequences

TLDR

Investor‑fund cash flows form a complex, bidirectional relationship that influences fund prospects, fees, manager risk choices, asset pricing, financial stability, and investor protection. The paper surveys the literature on investor flows, comparing open‑end mutual fund flows to other investment vehicles and outlining future research and design opportunities. The authors conduct a literature review, describing how open‑end flows compare to other investment vehicles.

Abstract

Cash flows between investors and funds are both cause and effect in a complex web of economic decisions. Among the issues at stake are the prospects and fees of the funds, the efforts and risk choices by the funds' managers, the pricing and comovement of the assets they trade, the stability of the financial system and the real economy, and the retirement security and protection of the investors. There is an accordingly large and growing literature on flows that has concentrated on the main retail investment pool, the open-end mutual fund, and has used flows to explore many aspects of retail financial decision making. We survey this literature and, where relevant, describe how open-end flows compare to other investment vehicles. We also identify opportunities both for future research and for refinement of mutual fund design, in particular as suggested by the recent rethinking of retail investment pools in the European Union.