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The fund industry is typically structured around so-called fund families. Under that perspective, fund sponsors launch a few types of funds available to investors. Two arguments can be suggested to explain this fact which is inconsistent with the standard paradigm in finance. First, from a demand-side perspective, different kinds of investors have different kinds of tastes, but those tastes are not well represented by standard economic models. Second, from an industry supply-side perspective, it might be interesting for a sponsor to launch a few funds, which maximizes the chance that one particular fund has outstanding abnormal performance.
It is well known that this fund then attracts huge inflows (Nanda et al. (2004)). Indeed, the non-linearity of the inflow/outflow...
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