Fund Families as Delegated Monitors of Money Managers

38 Pages Posted: 4 Nov 2008

See all articles by Simon Gervais

Simon Gervais

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Anthony W. Lynch

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

David K. Musto

University of Pennsylvania - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: November 2003

Abstract

Because a money manager learns more about her skill from her management experience than outsiders can learn from her realized returns, she expects inefficiency in future contracts that condition exclusively on realized returns. A fund family that learns what the manager learns can reduce this inefficiency cost if the family is large enough. The family s incentive is to retain any given manager regardless of her skill but, when the family has enough managers, it adds value by boosting the credibility of its retentions through the firing of others. As the number of managers grows the efficiency loss goes to zero.

Suggested Citation

Gervais, Simon and Lynch, Anthony W. and Musto, David K., Fund Families as Delegated Monitors of Money Managers (November 2003). NYU Working Paper No. SC-AM-03-14, Available at SSRN: https://ssrn.com/abstract=1295175

Simon Gervais (Contact Author)

Duke University - Fuqua School of Business ( email )

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Duke Innovation & Entrepreneurship Initiative ( email )

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Anthony W. Lynch

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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National Bureau of Economic Research (NBER) ( email )

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David K. Musto

University of Pennsylvania - Finance Department ( email )

The Wharton School
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