Managerial Rents vs. Shareholder Value in Delegated Portfolio Management: The Case of Closed-End Funds

63 Pages Posted: 26 Oct 2016 Last revised: 11 Jan 2018

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, 2016

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 perception about future performance, as reflected in fund premiums, through AUM expansions and fee increases. However, the penalties for poor performance or unfavorable investor perception 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: G23, G34

JEL Classification: Closed-end fund, Closed-end fund discount, Managerial rent

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, 2016). CFS Working Paper, No. 548. Available at SSRN: https://ssrn.com/abstract=2858912 or http://dx.doi.org/10.2139/ssrn.2858912

Youchang Wu

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 (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien A-1019
Austria

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