Investors are constantly reminded to focus on two factors when choosing a mutual fund: fees and performance. The fees shouldn't be too high, and the performance should be better than the index over the long term. But that two-pronged approach leaves a very important factor out of the analysis — a factor that research suggests can influence the returns generated by a fund: how much money the fund's portfolio manager has invested in their own fund.
This is nothing new — the Securities and Exchange Commission has required funds to disclose ownership by portfolio managers for years as part of a fund prospectus State of Additional Information. The requirement makes perfect logical sense: A fund manager who is invested in their own fund is more likely to be aligned with fund shareholder interests. Or, as they say in the fund industry, "managers who eat their own cooking."