Legality and Fund Manager Compensation
34 Pages Posted: 2 Aug 2005
Date Written: January 2005
This paper introduces a new dataset from 50 private investment funds from 17 countries in Africa, North and South America, Europe and Australasia. We analyze compensation in regards to fixed management fees (as a percentage of fund size), performance fees (the carried interest percentage), clawbacks (reduced fees for poor performance), and cash versus share distributions (payment to institutional investors). We control for a variety of factors including market conditions, institutional investor and fund manager characteristics, including education and experience as well as fund factors such as stage and industry focus, among other control variables available in the new detailed international dataset. The data indicate that legal conditions by far have the most robust statistically and economically significant effect on compensation across countries: fixed fees are higher and performance fees are lower in countries with poor legal conditions; clawbacks are more likely in countries with poor legal conditions; and cash-only distributions are much more likely to be mandated among offshore funds.
Keywords: Managerial Compensation, Incentive Contracts, Private Equity, Law and Finance
JEL Classification: G23, G24, G28, K22, K34
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