Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/76909 
Year of Publication: 
1997
Series/Report no.: 
Working Paper Series: Finance & Accounting No. 7
Publisher: 
Johann Wolfgang Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften, Frankfurt a. M.
Abstract: 
Performance fees for portfolio managers are designed to align the managers' goals with those of the investors and to motivate managers to aquire superior information and to make better investment decisions. A part of the literature analyzes performance fees on the basis of market valuation. In this article it is shown that market valuation faces a dilemma: on the one hand, the conditions which allow for market valuation imply that the portfolio manager perfectly hedges the performance fee. This in turn implies severe restrictions on the incentive effects of the performance fee. In particular, the fee does not motivate the manager to use superior information for investment decisions concerning the managed portfolio. On the other hand, better incentives can only be generated under conditions which exclude market valuation. In this case, the analysis has to be based on expected utility valuation.
Subjects: 
superior information
incentive effects
market valuation
performance fees
portfolio managers
JEL: 
D82
G11
G12
G14
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
102.21 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.