Unearned Performance Fees

Journal of Business Finance & Accounting, 1996 v23(7), 1033-1042

10 Pages Posted: 14 May 2008 Last revised: 7 Oct 2013

See all articles by Robert Ferguson

Robert Ferguson

AnswersToGo

Dean Leistikow

Fordham University - Finance Area

Date Written: September 1996

Abstract

This paper provides a new paradigm for thinking about performance fees. Closed-form expressions for the value and expected value of the performance fee for a popular generic structure are presented. The expected fee is decomposed into earned and unearned components. Suggestions for reducing the expected unearned performance fee are provided. It is shown that the expected unearned performance fee can be reduced substantially with simple procedures. Finally, it is shown for another popular fee structure that the expected unearned performance fee can be negative for talented managers. The paradigm is easily generalized to other performance fee structures.

Keywords: performance fee investment management

JEL Classification: G10, G11, G13

Suggested Citation

Ferguson, Robert and Leistikow, Dean, Unearned Performance Fees (September 1996). Journal of Business Finance & Accounting, 1996 v23(7), 1033-1042. Available at SSRN: https://ssrn.com/abstract=1132864 or http://dx.doi.org/10.2139/ssrn.1132864

Robert Ferguson (Contact Author)

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6815 Edgewater Drve
Apt 208
Coral Gables, FL FL 33133
United States
7868974573 (Phone)

Dean Leistikow

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States

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