Long-Run Investment Management Fee Incentives and Discriminating between Talented and Untalented Managers

“Long-Run Investment Management Fee Incentives and Discriminating Between Talented and Untalented Managers”, Journal of Investment Management, 2003, v1(4), 1-26.

Fordham University Schools of Business Research Paper No. 2737409

26 Pages Posted: 25 Feb 2016 Last revised: 26 Apr 2016

See all articles by Robert Ferguson

Robert Ferguson

AnswersToGo

Dean Leistikow

Fordham University - Finance Area

Date Written: January 1, 2003

Abstract

Ferguson and Leistikow [(1997). Journal of Financial Engineering 6, 1–30] (FLa) was the first long-run risk-neutral analysis of the performance volatility incentives created by investment management fee structures. This paper extends FLa in six ways. It allows the portfolio’s value to change, incorporates expected investment performance, and addresses expenses and distributions. It also shows the impact of paying investment management performance fees from the portfolio, and determines if the contract renewal structure and fee arrangements discriminate effectively among talented and untalented managers. Finally, it introduces a volatility-dependent contract renewal structure that provides good discrimination and strongly motivates manager behavior consistent with client preferences.

Keywords: Investment Management Fee Incentives, Investment Management, Investment Performance Measurement, active management

JEL Classification: G10, G11, G12, G14

Suggested Citation

Ferguson, Robert and Leistikow, Dean, Long-Run Investment Management Fee Incentives and Discriminating between Talented and Untalented Managers (January 1, 2003). “Long-Run Investment Management Fee Incentives and Discriminating Between Talented and Untalented Managers”, Journal of Investment Management, 2003, v1(4), 1-26.; Fordham University Schools of Business Research Paper No. 2737409. Available at SSRN: https://ssrn.com/abstract=2737409

Robert Ferguson (Contact Author)

AnswersToGo ( email )

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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