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Portfolio Manager Compensation in the U.S. Mutual Fund Industry
Author(s) -
MA LINLIN,
TANG YUEHUA,
GÓMEZ JUANPEDRO
Publication year - 2019
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12749
Subject(s) - sophistication , incentive , mutual fund , portfolio , compensation (psychology) , business , dismissal , closed end fund , agency (philosophy) , finance , principal–agent problem , accounting , microeconomics , economics , corporate governance , psychology , social science , philosophy , epistemology , sociology , political science , psychoanalysis , law
We study compensation contracts of individual portfolio managers using hand‐collected data of over 4,500 U.S. mutual funds. Variations in the compensation structures are broadly consistent with an optimal contracting equilibrium. The likelihood of explicit performance‐based incentives is positively correlated with the intensity of agency conflicts, as proxied by the advisor's clientele dispersion, its affiliations in the financial industry, and its ownership structure. Investor sophistication and the threat of dismissal in outsourced funds serve as substitutes for explicit performance‐based incentives. Finally, we find little evidence of differences in future performance associated with any particular compensation arrangement.