My Kingdom for a Horse: Resolving Conflicts of Interest in Asset Management

Abstract

Racehorse trainers operate asset management businesses in which the assets owned by outside clients compete with those owned by managers for the latter's time, care and attention. Although this potentially leads to serious conflicts of interest, we find no evidence of an agency problem: in a sample of 8000 racehorses and their associated stables, client-owned horses perform no worse than trainer-owned horses on average. However, this outcome is not uniform across stables: the average performance advantage of client-owned horses over their trainer-owned counterparts is positive in big stables where client-owners provide much of the trainer's income, but is negative in small stables with relatively few outside clients. Agents with more to lose apparently behave better.