We investigate the how and why of performance fee provisions in a free contracting environment such as the Italian mutual fund market was until 2006. We find weak or no support for the hypothesis that these provisions emerge as an economically efficient solution for both managers and investors in a rational asset management industry plagued by asymmetric information. They appear, instead, to emerge mainly as the product of strategic pricing policies pursued by profit-maximizing asset managers wishing to ease market competition, leverage on investors’ sentiment, and hedge their cost structure. Alternatively, fears that managers may opportunistically alter funds’ investment policies to maximize the option value embedded in the incentive provisions appear unjustified.
Mutual Fund Incentive Fees: Determinants and Effects
DRAGO, Danilo;
2010-01-01
Abstract
We investigate the how and why of performance fee provisions in a free contracting environment such as the Italian mutual fund market was until 2006. We find weak or no support for the hypothesis that these provisions emerge as an economically efficient solution for both managers and investors in a rational asset management industry plagued by asymmetric information. They appear, instead, to emerge mainly as the product of strategic pricing policies pursued by profit-maximizing asset managers wishing to ease market competition, leverage on investors’ sentiment, and hedge their cost structure. Alternatively, fears that managers may opportunistically alter funds’ investment policies to maximize the option value embedded in the incentive provisions appear unjustified.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
