Managerial Rents vs. Shareholder Value in Delegated Portfolio Management: The Case of Closed-End Funds
Review of Financial Studies, Forthcoming
60 Pages Posted: 21 Nov 2012 Last revised: 4 Jul 2016
Date Written: July 3, 2015
We examine the dynamics of assets under management (AUM) and management fees at the portfolio manager level in the closed-end fund industry. We find that managers capitalize on good past performance and favorable investor perceptions about future performance, as reflected in fund premiums, through AUM expansions and fee increases. However, the penalties for poor performance or unfavorable investor perceptions are either insignificant, or substantially mitigated by manager tenure. Long tenure is generally associated with poor performance and high discounts. Our findings suggest substantial managerial power in capturing CEF rents. We also document significant diseconomies of scale at the manager level.
Keywords: closed-end fund, closed-end fund discount, portfolio manager, managerial rent
JEL Classification: G23, G34
Suggested Citation: Suggested Citation