Description:
We develop a novel approach to jointly examine skill, scale, and value added across individual funds. We find that the value added is (i) positive for the vast majority of funds, and (ii) close to its optimal level after an adjustment period possibly due to investors' learning. We also show that skill and scale (i) vary substantially, and (ii) are strongly correlated across funds---two features that shape the value added distribution. These results are consistent with theoretical models in which funds have bargaining power over investors, and highlight the importance of the fund industry in improving market efficiency