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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27004
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| Title: | Understanding Fee Structures in the Asset Management Business |
| Authors: | Lynch, Anthony W.
Musto, David K. |
| Issue Date: | 17-Dec-1997 |
| Series/Report no.: | FIN-98-050 |
| Abstract: | This paper considers the economic role of fees in aligning the
incentives of money managers with those of investors. We examine a
simple model in which manager effort (or investment in human and
physical capital) is observed by the investor prior to her investment
decision, but is not verifiable. This setup creates a positive economic
role for net asset value (NAV) as a contracting variable and thus
provides an explanation for the widespread use of contracts based on NAV
in both the mutual and hedge fund industries. We also provide an
explanation for why hedge funds use asymmetric performance fees while
mutual funds typically charge a fixed fraction of NAV (even though
'fulcrum' performance fees are available). |
| URI: | http://hdl.handle.net/2451/27004 |
| Appears in Collections: | Finance Working Papers
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