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Mutual Fund Incentive Fees: Determinants and Effects
Author(s) -
Drago Danilo,
Lazzari Valter,
Navone Marco
Publication year - 2010
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2010.01076.x
Subject(s) - leverage (statistics) , incentive , hedge fund , business , management fee , mutual fund , fund administration , performance fee , closed end fund , finance , manager of managers fund , open end fund , asset (computer security) , target date fund , investment fund , investment management , fund of funds , competition (biology) , microeconomics , economics , institutional investor , corporate governance , computer security , machine learning , computer science , ecology , biology
We investigate the how and why of performance fee provisions in a free contracting environment such as the Italian mutual fund market until 2006. We find weak support for the hypothesis that these provisions emerge as an economically efficient solution in a rational asset management industry plagued by asymmetric information. They appear to emerge mainly as the product of strategic pricing by 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.