Cross-Subsidization in SRI Fund Families

Abstract

We investigate the existence of strategic cross-fund subsidization in SRI fund families. For a sample of SRI fund families domiciled in the U.S., we find evidence of cross-fund subsidization on performance where winning funds are subsidized by peer losing funds. However, there is no evidence of cross-fund subsidization between high-fee and low-fee funds, and between young and mature funds of the same family. Cross-fund subsidization is attenuated by manager ownership in subsidizing funds, and is more likely to occur between sibling funds with ethical screening than with environmental, social, and combined environmental-social-governance (ESG) screening.