Double Bonus? Implicit Incentives for Money Managers with Explicit Incentives
40 Pages Posted: 6 Jun 2017 Last revised: 4 Jul 2019
Date Written: July 2, 2019
We use a unique dataset of European performance-fee mutual funds to examine the interaction between explicit incentives (performance fees) and implicit incentives (fund flows) of asset managers. Funds with performance fees face substantially steeper implicit incentives compared to non-performance-fee funds. Among performance-fee funds, investors’ flows depend on the performance fee level and attenuate the asymmetry in the total pay for performance of higher-fee funds. Thus, the investor preferences that we elicit favor performance-sensitive but not necessarily asymmetric compensation schedules for fund companies. Our results shed new light on several aspects of the contracting problem in asset delegation.
Keywords: money management, performance fees, fund flows, managerial incentives
JEL Classification: G11, G23
Suggested Citation: Suggested Citation