Target date funds and other funds with target allocations (TAFs) rebalance in a predictable manner: when equities plunge, TAFs redeem bond fund shares and purchase equity fund shares, transmitting equity market shocks to the bond market. This introduces a new form of cross-market fragility: when equities fall and TAFs are expected to rebalance out of bond mutual funds, \textit{other} investors also redeem strategically, since liquidation costs are borne by the remaining mutual fund investors. These strategic runs are particularly pronounced among illiquid bond mutual funds, where liquidation costs are large and therefore payoff complementarities are strong. Together, TAF rebalancing and the associated runs explain half of aggregate bond fund outflows and a significant share of Treasury and corporate yield dislocations during COVID-19. The growth of TAFs contributes to the rise in stock-bond correlation and weakens the traditional role of bonds as safe-haven assets.

We investigate whether packaging active management into an exchange-traded, shortable vehicle improves managerial discipline and capital allocation. We show that actively managed ETFs (AETFs) exhibit flow-performance sensitivity (FPS) almost three times higher than nearly identical mutual funds. This heightened sensitivity is driven by short-selling: AETFs with higher short positions experience significantly steeper FPS, as short-sellers trigger outflows via the ETF redemption channel. This external monitoring imposes real career consequences: short positions spike upon the appointment of poor-performing managers and predict managerial exit. Finally, we show that short-selling discipline shapes the composition of managers across fund structures, as the best performers manage AETFs while the worst manage only mutual funds. Our results suggest that removing short-sale constraints on delegated capital strengthens the disciplinary forces that align capital with managerial ability.

We study how prime brokers' credit supply affects hedge fund leverage, portfolio allocation, and performance. We construct a novel, fund-level measure of credit supply by linking survey responses on leverage availability with reported creditor relationships. Hedge funds with better access to credit subsequently borrow more and generate higher risk-adjusted returns. This effect is stronger for funds with concentrated prime broker relationships and those relying on secured borrowing rather than derivatives for leverage. Credit supply matters most during periods of market stress and when arbitrage opportunities are abundant. We also find that prime brokers allocate scarce credit disproportionately to their most profitable clients. Our findings provide empirical support for models of leverage constraints in which less constrained investors hold higher-alpha portfolios, and help explain the outperformance of large hedge funds with diverse credit sources.