Abstract
We discuss two strategies sponsors have used successfully to introduce new equity funds and promote the performance of the funds after their introduction. The strategy of “incubation” allows funds that compile a favorable track record in private to be marketed to the public at a later opportune time. The strategy of “selective attention” directs favorable allocations of “special situations” into new funds that are open to the public. Introduction strategies are most apparent among aggressive growth funds, where first-year performance has increasingly become superior. Incubator funds remain small while private, but once opened, they quickly increase in size and revert to median performance. The first-year success of selective attention funds also attracts large amounts of cash, which undermines their subsequent performance.
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