Abstract
Fixed income markets rely on delegated asset management, where fund managers’ portfolio decisions are directed and restricted by investment mandates. We use textual analysis to classify U.S. fixed income funds’ mandate contents. Credit ratings can be used in mandates to define investable assets. Despite the shortcomings of ratings revealed in the global financial crisis, their use in mandates has steadily increased over the past two decades. By 2018, ratings are used by 94% of fixed income mutual funds. Credit ratings are an integral feature of contracting in financial markets and our results point to a lack of practically useful alternatives.
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