Attracting Flows by Attracting Big Clients

Lauren  Cohen; Breno  Schmidt

Article | Journal of Finance | October 2009

Attracting Flows by Attracting Big Clients

by Lauren Cohen and Breno Schmidt

Abstract

We explore a new channel for attracting inflows using a unique dataset of corporate 401(k) retirement plans and their mutual fund family trustees. Families secure substantial inflows by being named the trustee of a 401(k) plan. We find that family trustees significantly overweight their 401(k) client firm's stock. Trustee overweighting is more pronounced when the relationship is more valuable to the trustee family, and it is concentrated in those funds that receive the greatest benefit from the inflows. When other mutual funds are selling the client firm's stock, the trustee does the opposite and significantly increases its holdings of the client. This overweighting is not explained by superior information. We also quantify the flow benefit to the trustee mutual funds of being included in the client firm's 401(k) plan and find that this inclusion has an economically and statistically large, positive effect on inflows.

Keywords: Value; Information; Investment Funds; Stocks; Relationships; Financial Services Industry;

Format: Print

28 pages

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Citation:

Cohen, Lauren, and Breno Schmidt. "Attracting Flows by Attracting Big Clients." Journal of Finance 64, no. 5 (October 2009): 2125–2151. (Winner of the Barclays Global Investors Best Paper Prize, Asset Allocation Symposium, European Finance Association 2006. Winner of the Society of Quantitative Analysts Award, Best Paper in Quantitative Investments, Western Finance Association 2007.)

Tianqiao Chen, founder and CEO of Shanda Group, has set up his family office in the U.S. in 2016 after exiting from Shanda's Internet games business in China in 2014, again pioneering an unconventional approach to the management of a family office.

Case | HBS Case Collection | September 2017 (Revised June 2019)

Dianrong: Marketplace Lending, Blockchain, and 'The New Finance' in China

Christopher J. Malloy, Lauren H. Cohen and Anthony K. Woo

This case examines the strategic positioning of Dianrong, one of the largest online peer-to-peer (P2P) lending platforms in China, in its attempt to become a foundational player in the expansion of the FinTech sector in Asia. Dianrong had recently announced the acquisition of the asset-origination operations of Shanghai-based Quark Finance, augmenting Dianrong’s asset management and credit evaluation capabilities across China, as well as a new initiative to develop the first blockchain platform for supply chain finance in China. The goal was to provide capital to smaller suppliers in the supply chain, and provide enhanced visibility and transparency of supply chains for large multinational manufacturers. The company had also made several recent forays into other related sectors, with their creation of “DR Group” as an umbrella corporate structure that included all wholly-owned businesses, joint ventures, and partnerships. This rebranded group structure encompassed the various aspects of “The New Finance,” leveraging FinTech innovation to deliver value for borrowers, lenders, and investors. Case protagonist Soul Htite, Founder and CEO of Dianrong, and the former CTO of Lending Club, must decide how to execute on the firm’s aggressive diversification plan. Recent advances at the company, while promising, were complicated by the uncertainties in the political and regulatory landscape. How should the company leverage its advantage in technology and position itself in the market? Which sectors within its larger umbrella structure were the most promising avenues to focus on? Was Dianrong tackling too many sectors and problems at once? Htite’s view was that in order to truly succeed in China a technology company had to “create” much of the ecosystem and infrastructure oneself, as opposed to in the US where companies could simply “provide add-ons” to existing firms and capabilities. But the reality of trying to excel in so many different areas was daunting.

Keywords: Financing and Loans; Online Technology; Supply Chain; Finance; Innovation and Invention; Competition; Product Positioning; Strategy; Financial Services Industry; China;

Citation:

Malloy, Christopher J., Lauren H. Cohen, and Anthony K. Woo. "Dianrong: Marketplace Lending, Blockchain, and 'The New Finance' in China." Harvard Business School Case 218-043, September 2017. (Revised June 2019.) View Details

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ClearLife’s first product was a trading and analytics platform for participants in the US life settlement market, the secondary market for life insurance. ClearLife played a key role in facilitating transactions and devising a common language for expressing value and risk in this alternative asset class, and soon became the leading service provider in this market. After six years, ClearLife began to search for new business opportunities and identified the equity release market as particularly promising: ClearLife could leverage its experience in handling longevity-linked assets, and there were no strong competitors in sight. Nevertheless, this small enterprise faced the risk and challenges associated with allocating its limited resources to expanding the business. Students studying this case explore the factors underpinning the attempt of an InsurTech company trying to diversify.

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Attracting Flows by Attracting Big Clients

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