Faculty of Economics and Business Administration Publications Database

Risikoanreize bei der Gestaltung erfolgsabhängiger Entlohnungssysteme für Kapitalanlagegesellschaften

Volume: 50
Number: 6
Pages: 507 - 529
Month: June
ISSN-Print: 0341-2687
Link External Source: Online Version
Year: 1998

Traditional fees reward portfolio managers with a fixed percentage of the volume of assets under management. Whether the increase of the asset volume comes from general market movements or from the portfolio manager''s skill in stock selection or market timing, is irrelevant. Performance based management fees link the advisor''s reward more directly to his skill. A potential problem with some of these contracts is that they possibly make portfolio managers to alter the risk of the portfolio in a manner, which is not wanted by the sponsors of the fund. This paper uses option pricing theory to develop conditions for contract parameters that provide proper risk incentives for different kinds of investment strategies.