Valuing Active Managers, Fees, and Fund Discounts

Posted: 25 Feb 2016 Last revised: 25 Apr 2016

See all articles by Robert Ferguson

Robert Ferguson


Dean Leistikow

Fordham University - Finance Area

Date Written: March 31, 2001


We use risk-neutral valuation to value a portfolio and decompose the value into the components accruing to its stakeholders - service providers, portfolio managers, and the owners. The analysis incorporates managers' expected performance and contract-renewal issues. It provides a paradigm for valuing active portfolio management. A managed portfolio's economic value is shown to differ from its net asset value. The article provides an improved foundation for computing fair closed-end fund discounts and a partial explanation of equilibrium in the markets for open- and closed-end mutual funds. The article implies that changes in closed-end fund discounts are the analog of open-end fund inflows. It also shows that closed-end fund discounts are relatively sensitive to small changes in anticipated fund performance.

Keywords: closed end fund discounts, investment management fees, active management, portfolio management

JEL Classification: G10, G11, G12, G14

Suggested Citation

Ferguson, Robert and Leistikow, Dean, Valuing Active Managers, Fees, and Fund Discounts (March 31, 2001). Financial Analysts Journal, Vol. 57, No. 3, 2001; Fordham University Schools of Business Research Paper No. 2737415. Available at SSRN:

Robert Ferguson (Contact Author)

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Dean Leistikow

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States

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