Double Bonus? Implicit Incentives for Money Managers with Explicit Incentives

40 Pages Posted: 6 Jun 2017 Last revised: 4 Jul 2019

See all articles by Vincent Gregoire

Vincent Gregoire

HEC Montreal - Department of Finance

Juan M. Sotes-Paladino

Universidad de los Andes, Chile; University of Melbourne - Department of Finance

Date Written: July 2, 2019

Abstract

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

Gregoire, Vincent and Sotes-Paladino, Juan M., Double Bonus? Implicit Incentives for Money Managers with Explicit Incentives (July 2, 2019). Available at SSRN: https://ssrn.com/abstract=2980599 or http://dx.doi.org/10.2139/ssrn.2980599

Vincent Gregoire (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Juan M. Sotes-Paladino

Universidad de los Andes, Chile ( email )

Chile

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia
+61 3 9035 9827 (Phone)
+61 3834 6914 (Fax)

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