Non-pecuniary Investor Preferences and Mutual Fund Offerings

We extend the Grossman-Stiglitz framework to include investors with heterogeneous preferences, some driven by financial motives and others by non-financial considerations, and information providers catering to both. We study equilibrium prices, endogenous information acquisition, and the sale of information. The model predicts that asset intermediaries, such as fund families, have an incentive to operate multiple funds catering to different investor types simultaneously. Preference heterogeneity induces cross-fund trading that acts as noise to each other, reducing price informativeness for outsiders. This mechanism provides a theoretical explanation for the growing variety of funds that target distinct investor motives.