Abstract
Investment mandates of fixed income funds constrain managers’ portfolio decisions, often employing credit ratings to classify asset risk. We categorize U.S. and European fixed income funds’ mandates using textual analysis and measure the use of ratings. Over the past two decades, despite the weaknesses of ratings revealed in the global financial crisis, ratings use has increased significantly. Since 2010, the fraction of funds not using ratings in any way has fallen by almost half in both the U.S. and Europe. By 2020, 94% of U.S. funds and 65% of European funds use ratings. These patterns fit agency-based models of investment mandates and point to a lack of practically useful alternatives.