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

See all articles by Youchang Wu

Youchang Wu

University of Oregon - Lundquist College of Business

Russ Wermers

University of Maryland - Robert H. Smith School of Business

Josef Zechner

Vienna University of Economics and Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 3, 2015

Abstract

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

Wu, Youchang and Wermers, Russell R. and Zechner, Josef, Managerial Rents vs. Shareholder Value in Delegated Portfolio Management: The Case of Closed-End Funds (July 3, 2015). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2179125 or http://dx.doi.org/10.2139/ssrn.2179125

Youchang Wu (Contact Author)

University of Oregon - Lundquist College of Business ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Russell R. Wermers

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/rwermers/

Josef Zechner

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien A-1019
Austria

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