Long-Run Investment Management Fee Incentives and Discriminating between Talented and Untalented Managers

Journal Of Investment Management, Vol. 1, No. 4, Fourth Quarter 2003

Posted: 1 Apr 2004

See all articles by Robert Ferguson

Robert Ferguson

Axiomatic Systems, Inc.

Dean Leistikow

Fordham University - Finance Area

Abstract

Ferguson and Leistikow [1997] (FLa) was the first long-run risk-neutral analysis of the performance volatility incentives created by investment management fee structures. This paper extends FLa in six ways. It allows the portfolio's value to change, incorporates expected investment performance, and addresses expenses and distributions. It also shows the impact of paying investment management performance fees from the portfolio, and determines if the contract renewal structure and fee arrangements discriminate effectively among talented and untalented managers. Finally, it introduces a volatility-dependent contract renewal structure that provides good discrimination and strongly motivates manager behavior consistent with client preferences.

Keywords: Management Fee Incentives, Discrimination, Manager Talent, Fee Structures, Investment Management, Contract Renewal Arrangements

JEL Classification: G00

Suggested Citation

Ferguson, Robert and Leistikow, Dean, Long-Run Investment Management Fee Incentives and Discriminating between Talented and Untalented Managers. Journal Of Investment Management, Vol. 1, No. 4, Fourth Quarter 2003. Available at SSRN: https://ssrn.com/abstract=497293

Robert Ferguson (Contact Author)

Axiomatic Systems, Inc. ( email )

5151 Collins Avenue, Suite 552
Miami Beach, FL 33140
United States
305-866-7720 (Phone)

Dean Leistikow

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
803
PlumX Metrics