The Geography of Subadvisors, Managerial Structure, and the Performance of International Equity Mutual Funds

We study whether subadvising abroad provides an information advantage that improves the performance of international equity mutual funds. We find that it does not. In fact, internationally outsourced funds underperform on a risk-adjusted basis by up to 162 bps annually. The underperformance is concentrated in funds managed by single subadvisors, who are less likely to be terminated after poor performance compared to funds with multiple subadvisors. We dissect fund performance by the location of its subadvisors and find that international subadvisors underperform primarily in their local holdings. Finally, we show that the industry is nonetheless on a path toward equilibrium. (JEL G11, G12, G14, G15, G23). Received June 12, 2021; editorial decision September 21, 2022 by editor Marcin Kacperczyk. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.