The relationship between fees and performance of domestic equity funds in Thailand

Abstract

This study inclusively examines the relationship between fund fees and performance of open-end domestic equity funds in Thailand from 2010 to 2019 to analyze the domestic-equity fund market in 2 main dimensions: the market competitive and conflict-of-interest between the duties of asset management companies (AMCs) to their parent bank and to unitholders through fund fee channel. The study investigates the relationship of (1) fund fees, (2) fund fees set by bank subsidiaries, and (3) fund fees set by large-bank subsidiaries with its performance in term of both returns over benchmark and Jensen’s alpha.

Based on the results, investors paid higher fees to AMCs without compensating the fees with superior performance from investment in Thai domestic-equity funds on average. These also implies the domestic equity funds market is not able to be concluded that the market is highly competitive. For funds managed by bank subsidiaries, the result reports that there is statistically significant in the additional negative impact from the fees set by bank-subsidiaries on the fund performance. Thus, the fees set by bank-subsidiaries do matter as it could higher deteriorate the fund performance. One of underlying concept to explain this is because of bank conglomerate structure in mutual fund market, there is possible that AMCs may involve in the activities such as increase in fund fees collected from unitholders that was beneficial to parent bank in term of increase in its revenue rather than maximizing the interests or fund returns to unitholders. Moreover, to inclusively study in conflict-of-interest issue through fund fee channel, the result significantly shows that investors would significantly pay higher fees especially to non-large bank subsidiaries and not receive superior performance.