Asset Management at the Zero-Fee Bound

37 Pages Posted: 2 Jan 2019 Last revised: 21 Nov 2019

See all articles by Marius Zoican

Marius Zoican

University of Toronto at Mississauga - Department of Management; University of Toronto - Rotman School of Management

Date Written: November 20, 2019

Abstract

I build a model of delegated asset management with moral hazard and security lending. Lending markets transfer informational rents from short-sellers to funds. Investors optimally receive the proceeds as state-contingent dividends which correlate with shorting demand, providing a natural hedge. Fee discounts are optimal only if funds can appropriate lending revenues, for example through affiliated lending agents. Lower fund costs may lead to a "zero-fee trap", where funds charge no management fees but fully extract lending income. In equilibrium, funds holding riskier underlying portfolios are more transparent, pay higher dividends, and charge higher management fees than funds with safer investments.

Keywords: asset management, security lending, robo-advisors, moral hazard

JEL Classification: G11, G14, G23

Suggested Citation

Zoican, Marius, Asset Management at the Zero-Fee Bound (November 20, 2019). Available at SSRN: https://ssrn.com/abstract=3296538 or http://dx.doi.org/10.2139/ssrn.3296538

Marius Zoican (Contact Author)

University of Toronto at Mississauga - Department of Management ( email )


Canada

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.mariuszoican.org

Register to save articles to
your library

Register

Paper statistics

Downloads
139
Abstract Views
911
rank
214,385
PlumX Metrics