Portfolio Manager Compensation in the U.S. Mutual Fund Industry

93 Pages Posted: 18 Mar 2012 Last revised: 21 Mar 2018

Linlin Ma

Northeastern University

Yuehua Tang

University of Florida - Department of Finance

Juan-Pedro Gomez

IE Business School

Date Written: February 21, 2018


We study compensation contracts of individual portfolio managers using hand-collected data of over 4,500 U.S. mutual funds. Variations in the compensation structures are broadly consistent with an optimal contracting equilibrium. The likelihood of explicit performance-based incentives is positively correlated with the intensity of agency conflicts, proxied by the advisor’s clientele dispersion, its affiliations in the financial industry, and its ownership structure. Investor sophistication and the threat of dismissal in outsourced funds work as substitutes for explicit performance-based incentives. Finally, we find little evidence of differences in future performance associated to any particular compensation arrangement.

Keywords: portfolio manager compensation, mutual funds, optimal contracting, agency conflicts

JEL Classification: G23, J33

Suggested Citation

Ma, Linlin and Tang, Yuehua and Gomez, Juan-Pedro, Portfolio Manager Compensation in the U.S. Mutual Fund Industry (February 21, 2018). Journal of Finance, Forthcoming; Finance Down Under 2014 Building on the Best from the Cellars of Finance. Available at SSRN: https://ssrn.com/abstract=2024027 or http://dx.doi.org/10.2139/ssrn.2024027

Linlin Ma

Northeastern University ( email )

Boston, MA 02115
United States
617-373-4569 (Phone)

Yuehua Tang (Contact Author)

University of Florida - Department of Finance ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/yuehuatang

Juan-Pedro Gomez

IE Business School ( email )

Maria de Molina 12
Madrid, 28006
34 91 7821326 (Phone)
34 91 7454762 (Fax)

HOME PAGE: http://www.ie.edu/faculty/juan-pedro-gomez/

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