We study whether fund families efficiently allocate their fund managers to different market segments. Whether a fund … employed. We show that in the more efficient investment grade bond fund market segment, fund managers cannot translate higher … skill into higher fund alpha. In contrast, skilled managers can generate higher alpha in the less efficient high yield bond …

We show that fund families allocate their fund managers to different market segments such that their skill is rewarded … she works. Even skilled managers can generate alpha only if the market segment is inefficient. Fund families take this … relation between skill and inefficiency into account and allocate their best managers to the least efficient market segment …