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The behavior of a hedge-fund manager naturally depends on her compensation scheme, her preferences, and constraints on her risk-taking. We propose a numerical method which can be used to analyze the impact of these influences. The model leads to several interesting and novel results concerning...
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Fund managers are paid a fixed management fee in proportion to their assets under management. This means to maximize … revenue, managers hoard assets. Whilst this results in increased revenue for the manager often, due to diseconomies of scale … this perverse incentive. The ‘incentive fee hypothesis' states that once managers become sufficiently incentivized to …
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