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Author : Jürgen Eichberger
Publisher :
ISBN 13 :
Total Pages : 44 pages
Book Rating : 4.:/5 (318 download)
Download or read book On Fund Manager Incentives written by Jürgen Eichberger and published by . This book was released on 1994 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Seungyeon Won
Publisher :
ISBN 13 :
Total Pages : 32 pages
Book Rating : 4.:/5 (13 download)
Download or read book Managerial Incentives and Risk-Taking Behaviors of Fund Managers written by Seungyeon Won and published by . This book was released on 2017 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study was based on the hypothesis that a fund manager has incentive to take more risk with funds to conceal his actual management ability. A theoretical model was built to test this hypothesis. According to the model, when a fund manager's ability is not observable, a poor fund manager may increase a fund's risk to conceal his real ability, so that poor performance may be attributed to external market factors rather than ability. Previous studies have usually suggested that the different risk-taking behavior of fund managers is encouraged by the asymmetric delivery of information on fund returns. Unlike previous studies, this study focuses on real-world situations where a fund investor has more access to information about fund returns, and his decisions are often affected by concerns about fund reputation. This study highlights the fact that a fund manager has incentive to utilize fund investors' imperfect perception on his own managerial ability even under the condition that fund returns are all disclosed to fund investors. Additionally, this study applies Korean Equity fund data to empirically demonstrate that funds with lower risk-adjusted returns take more risks in the next period than do those with higher risk-adjusted returns, a finding that supports the results of the theoretical model.
Author : Jongha Lim
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (84 download)
Download or read book Indirect Incentives of Hedge Fund Managers written by Jongha Lim and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Indirect incentives exist in the money management industry when good current performance increases future inflows of new capital, leading to higher future fees. We quantify the magnitude of indirect performance incentives for hedge fund managers. Flows respond quickly and strongly to performance; lagged performance has a monotonically decreasing impact on flows as lags increase up to two years. Conservative estimates indicate that indirect incentives for the average fund are four times as large as direct incentives from incentive fees and returns to managers' own investment in the fund. For new funds, indirect incentives are seven times as large as direct incentives. Combining direct and indirect incentives, for each dollar generated for their investors in a given year, managers receive close to another dollar in direct performance fees plus the present value of future fees over the expected life of the fund. Older and capacity constrained funds have considerably weaker relations between future flows and performance, leading to weaker indirect incentives. There is no evidence that direct contractual incentives are stronger when market-based indirect incentives are weaker.
Author : Jurgen Eichberger
Publisher :
ISBN 13 :
Total Pages : 44 pages
Book Rating : 4.:/5 (318 download)
Download or read book On Relative Performance Contracts and Fund Manager's Incentives written by Jurgen Eichberger and published by . This book was released on 1997 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : John Bae
Publisher :
ISBN 13 :
Total Pages : 71 pages
Book Rating : 4.:/5 (13 download)
Download or read book Incentives Behind Side-by-Side Management of Mutual Funds and Hedge Funds written by John Bae and published by . This book was released on 2017 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the incentives that motivate management firms to simultaneously manage mutual funds and hedge funds. By identifying side-by-side management at both the management firm level and the manager level, we find that mutual fund management firms use side-by-side management to retain their talented managers and improve capital flows into their mutual funds. In contrast, hedge fund management firms engage in the side-by-side practice to collect more fees and smooth their compensation over time. The conflict of interest is more likely to exist when hedge fund managers establish mutual funds, and thus investors do not necessarily suffer from side-by-side management.
Author : Roy Kouwenberg
Publisher :
ISBN 13 :
Total Pages : 39 pages
Book Rating : 4.:/5 (129 download)
Download or read book Incentives and Risk Taking in Hedge Funds written by Roy Kouwenberg and published by . This book was released on 2007 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a theoretical study of how incentives affect hedge fund risk and returns and an empirical study of the performance of a large group of operating hedge funds. Most hedge fund managers receive a flat fee plus a share of the returns above a certain benchmark. We investigate how these features of hedge fund fees affect risk taking by the fund manager in the behavioural framework of prospect theory. The performance related component encourages funds managers to take excessive risk. However, risk taking is greatly reduced if a substantial amount of the manager's own money (at least 30%) is in the fund as well. The empirical results indicate that returns of hedge funds with incentive fees are not significantly more risky than the returns of funds without such a compensation contract. Average returns though, both absolute and risk-adjusted, are significantly lower in the presence of incentive fees. Part of this is the actual fee itself. Fund of hedge funds with higher fees earn higher net returns on average.
Author : Liquan Wang
Publisher :
ISBN 13 :
Total Pages : 178 pages
Book Rating : 4.:/5 (576 download)
Download or read book Studies on Dynamic Incentives of Mutual Fund Managers written by Liquan Wang and published by . This book was released on 2004 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Alexander Stremme
Publisher :
ISBN 13 :
Total Pages : 44 pages
Book Rating : 4.:/5 (129 download)
Download or read book Optimal Compensation for Fund Managers of Uncertain Type written by Alexander Stremme and published by . This book was released on 2019 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Performance-sensitivity of compensation schemes for portfolio managers is well explained by classic principal-agent theory as a device to provide incentives for managers to exert effort or bear the cost of acquiring information. However, the majority of compensation packages observed in reality display in addition a fair amount of convexity in the form of performance-related bonus schemes. While convex contracts may be explained by principal-agent theory in some rather specific situations, they have been criticized, both by the financial press as well as the academic literature, on thegrounds that they may lead to excessive risk-taking. In this paper, we show that convex compensation packages, though likely to be myopically not optimal, may serve as adevice to extract information about the ex-ante uncertain type of portfolio managers.Optimal contracts are thus determined by the trade-off between maximizing short-runexpected returns on one hand, and long-run informational benefits on the other. Ina discrete-time model, combining dynamic principal-agent theory with the theory oflearning by experimentation, we characterize optimal incentive schemes and optimal retention rules for fund managers, consistent with empirical observations.
Author : Chris Brooks
Publisher :
ISBN 13 :
Total Pages : 20 pages
Book Rating : 4.:/5 (129 download)
Download or read book The Gross Truth About Hedge Fund Performance and Risk written by Chris Brooks and published by . This book was released on 2008 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: Factor models are frequently applied to hedge fund returns in an attempt to separate the return from identified risk factors (beta) and from manager skill (alpha). More recently, these same techniques have been used to replicate the returns from hedge fund strategies with varying degrees of success. In this paper, we show that due to the particular nature of hedge fund incentive contracts, the use of net of fee returns can lead to considerably biased estimates of factor exposures which can distort the picture of fund manager performance. The solution we propose is to model the gross returns of hedge funds and the incentive fees independently, which gives a truer representation of the underlying return generating process. Using a large sample of hedge funds, we quantify the effect of this bias on both performance attribution and replication. We find that using net of fee returns understates the return attributable to beta by up to 58 basis points per annum. Following from this we find that some of the additional beta exposure can be captured by basing replication on gross rather than net returns. We also investigate the risk taking behaviour of fund managers conditional upon the delta of their incentive option and find that contrary to previous studies, there does appear to be evidence of increased risk taking for those managers who find themselves significantly below their high water mark.
Author : David Kuo Chuen Lee
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book An Equitable Structure for Hedge Fund Incentive Fees written by David Kuo Chuen Lee and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Hedge funds are collective investment vehicles fast becoming popular with high net worth individuals as well as institutional investors. Given an incentive structure that involves fees based on performance, this paper surveys the types of fees in contractual agreements between the hedge fund managers and their clients. It then uses actual examples to illustrate controversies, i.e., the free-rider problem and the quot;clawbackquot; syndrome that can arise in such agreements. The paper then proposes a structure and quot;equalizationquot; process that is both equitable and transparent to investors. The proposed structure involves the use of multi-portfolios giving any fund a structure similar to that of a partnership organization. The quot;equalizationquot; process is first demonstrated using stylized numerical examples under different scenarios to illustrate the equalization procedures and computations. We complement the stylized examples and show how the equalization process overcomes the abovementioned controversies. These illustrations show that the proposed approach improves on current methods and meets the objectives of equity and transparency. Applying the structure and quot;equalizationquot; process would likely lead to improved compatibility among investors and between the fund manager and investors.
Author : Ana Teresa Tavares-Lehmann
Publisher : Columbia University Press
ISBN 13 : 0231541643
Total Pages : 369 pages
Book Rating : 4.2/5 (315 download)
Download or read book Rethinking Investment Incentives written by Ana Teresa Tavares-Lehmann and published by Columbia University Press. This book was released on 2016-07-12 with total page 369 pages. Available in PDF, EPUB and Kindle. Book excerpt: Governments often use direct subsidies or tax credits to encourage investment and promote economic growth and other development objectives. Properly designed and implemented, these incentives can advance a wide range of policy objectives (increasing employment, promoting sustainability, and reducing inequality). Yet since design and implementation are complicated, incentives have been associated with rent-seeking and wasteful public spending. This collection illustrates the different types and uses of these initiatives worldwide and examines the institutional steps that extend their value. By combining economic analysis with development impacts, regulatory issues, and policy options, these essays show not only how to increase the mobility of capital so that cities, states, nations, and regions can better attract, direct, and retain investments but also how to craft policy and compromise to ensure incentives endure.
Author : Jennifer N. Carpenter
Publisher :
ISBN 13 :
Total Pages : 15 pages
Book Rating : 4.:/5 (214 download)
Download or read book The Optimal Dynamic Investment Policy for a Fund Manager Compensated with an Incentive Fee written by Jennifer N. Carpenter and published by . This book was released on 1995 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Martijn Cremers
Publisher :
ISBN 13 :
Total Pages : 41 pages
Book Rating : 4.:/5 (129 download)
Download or read book Does Skin in the Game Matter? Director Incentives and Governance in the Mutual Fund Industry written by Martijn Cremers and published by . This book was released on 2018 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a unique database on the ownership stakes of equity mutual fund directors to analyze whether the directors' incentive structure is related to fund performance. We find that the ownership stakes of both independent and non-independent directors play an economically substantial and statistically significant role. Specifically, funds in which directors have low ownership stakes, or ldquo;skin in the gamerdquo;, significantly underperform. We posit two economic mechanisms to explain this relation. First, a lack of ownership could lead directors to be less active monitors, increasing agency costs between fund shareholders and fund managers. Second, directors may have superior private information on future mutual fund performance, choosing not to invest in those funds that they expect to underperform. We find evidence in support of the monitoring mechanism and against the private information mechanism. In particular, we find no evidence that directors are able to avoid funds that underperform. Finally, our results cannot be explained by the previously documented relation between fund governance and mutual fund fees.
Author : Robert Pozen
Publisher : John Wiley & Sons
ISBN 13 : 0470949937
Total Pages : 366 pages
Book Rating : 4.4/5 (79 download)
Download or read book The Fund Industry written by Robert Pozen and published by John Wiley & Sons. This book was released on 2011-01-13 with total page 366 pages. Available in PDF, EPUB and Kindle. Book excerpt: Every investor, student of finance and participant in the mutual fund industry needs to read this book The Fund Industry details how mutual funds are marketed, regulated, and invested in stocks and bonds. The book also describes the critical factors needed to choose a specific fund for your investment or retirement plan, including what to look for when reading prospectuses, shareholder reports and third party reviews. In addition, the book: Discusses the spread of mutual funds to Asia, Europe, and Latin America Compares mutual funds to other investment vehicles such as hedge funds and ETFs Shows how to sort mutual funds by categories and subcategories based on security type and investment objective Other titles by Pozen: Too Big to Save? How to Fix the U.S. Financial System, also by Wiley Fundamentals of the Fund Industry is the most in-depth and up-to-date guide to navigating the mutual fund industry, written in an accessible style with many examples and charts.
Author : Tamara Wilkinson
Publisher : Bloomsbury Publishing
ISBN 13 : 1509976388
Total Pages : 268 pages
Book Rating : 4.5/5 (99 download)
Download or read book Venture Capital Investment and Government Incentives written by Tamara Wilkinson and published by Bloomsbury Publishing. This book was released on 2024-09-05 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book explores the best ways for governments to design venture capital investment incentives. Venture capital is a multi-billion-dollar industry and a major driver of innovation and national growth. Investment in startup companies by venture capital funds helps finance new inventions and create wealth, economic growth, and jobs. However, because venture capital investment is highly risky and sensitive to market downturns, many governments around the world use special legal and tax incentives to help encourage this form of investment. Since the introduction of the first venture capital incentive in the USA in 1958, scores of venture capital incentives have come and gone. These incentives have experienced varied success, with some failing entirely. Filling a gap in an important area, this book employs a legal and regulatory approach to examine venture capital policy from a global perspective. It uses an analytical framework to evaluate the design, implementation, and success of incentives, and looks at over 60 examples from 25 countries around the world. The book is aimed at researchers and policy makers in law, finance and economics, as well as practitioners and investors in the venture capital space. The book introduces the legal aspects of venture capital investment and presents a list of leading practice guidelines and recommendations to help policy makers design effective, efficient, and appropriate venture capital incentives.
Author : Judith A. Chevalier
Publisher :
ISBN 13 :
Total Pages : 44 pages
Book Rating : 4.:/5 (129 download)
Download or read book Career Concerns of Mutual Fund Managers written by Judith A. Chevalier and published by . This book was released on 2008 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the labor market for mutual fund managers and managers' responses to the implicit incentives created by their career concerns. We find that managerial turnover is sensitie to a fund's recent performance. Consistent with the hypothesis that fund companies are learning about managers' abilities, managerial turnover is more performance-sensitive for younger fund managers. Interpreting the separation-performance relationship as an incentive scheme, several of our results suggest that a desire to avoid separation may induce managers at different stages of their careers to behave differently. Younger fund managers appear to be given less discretion in the management of their funds; i.e. they are more likely to lose their jobs if their fund's beta or unsystematic risk level deviates from the mean for their fund's objective group. We also show that the shape of the job separation-performance relationship may provide an incentive for young mutual fund managers to be risk averse in selecting their fund's portfolio. Consistent with these implicit labor market incentives, younger fund managers do take on lower unsystematic risk and deviate less from typical behavior than their older counterparts. Finally, additional results on the flow of investments into mutual funds suggest that rather than just being due to a screening process, firing decisions may also be influenced by a desire to stimulate inflows of investment into the fund.
Author : Erasmo Giambona
Publisher :
ISBN 13 :
Total Pages : 46 pages
Book Rating : 4.:/5 (129 download)
Download or read book Incentive Fees and Mutual Fund Volatility Timing written by Erasmo Giambona and published by . This book was released on 2008 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that compensation incentives partly drive fund managers' market volatility timing strategies. Larger management fees are associated with less counter-cyclical or more pro-cyclical volatility timing. Fund investment objectives and styles also partly determine volatility timing. Funds with more aggressive styles time volatility more counter-cyclically. Thus, managers may try to outperform the general market by adopting aggressive styles, while dynamically hedging portfolio volatility using counter-cyclical volatility timing. We also find that fund managers systematically change their portfolio betas in response to aggregate equity fund cash flows. The average effects of volatility timing and fund flow timing on fund performance are mostly positive for funds that increase their betas when conditional volatility and fund flows increase (i.e., pro-cyclical timers).
