Delegation Chains

56 Pages Posted: 2 Nov 2021 Last revised: 29 Jun 2023

See all articles by Amil Dasgupta

Amil Dasgupta

London School of Economics (LSE); European Corporate Governance Institute (ECGI)

Ernst G. Maug

University of Mannheim Business School; European Corporate Governance Institute (ECGI)

Date Written: June 26, 2023

Abstract

We ask why we observe multiple layers of decision-making in fund management with investors, sponsors, fund managers, and consultants, even if additional decision-makers are costly and do not contribute to superior performance. In our model, an investor hires a wealth manager (“sponsor”), who can delegate asset allocation decisions to a fund manager with investing abilities inferior to her own. Delegation results in lower performance but may be chosen because it reduces the sponsor’s reputational risk: Sub-delegating decisions creates an additional decision-maker who garbles inferences about the sponsor's ability. We characterize when excessive delegation arises and the properties of delegation chains.

Keywords: Career concerns, delegated portfolio management, money management, pension funds, mutual funds

JEL Classification: G23, G34, G10, G11

Suggested Citation

Dasgupta, Amil and Maug, Ernst G., Delegation Chains (June 26, 2023). European Corporate Governance Institute – Finance Working Paper No. 798/2021, Available at SSRN: https://ssrn.com/abstract=3952744 or http://dx.doi.org/10.2139/ssrn.3952744

Amil Dasgupta (Contact Author)

London School of Economics (LSE) ( email )

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European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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Belgium

Ernst G. Maug

University of Mannheim Business School ( email )

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Mannheim, 68131
Germany
+49 621 181-1952 (Phone)

HOME PAGE: http://cf.bwl.uni-mannheim.de/de/people/maug/

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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