Does Hedge Fund Affiliation Matter?

We examine the performance of hedge funds affiliated to financial groups and find it to be positively related to the fee income of the fund as a proportion of overall revenue of the group. Moreover, strategy distinctiveness predicts the outperformance of independent funds. Arguably, independent funds face fewer institutional constraints and stronger incentives to successfully implement distinctive strategies. Affiliated funds, characterized by lower incentive fees, exhibit lower performance, reduced strategy distinctiveness and decreased flow-performance sensitivity. This evidence suggests that certain clientele prioritize lower contractual fees over performance outcomes.