We investigate behavior of optimal hedge fund leverage in a fund that has a compensation contract with high-water mark and hurdle rate provisions. A risk neutral fund manager can continuously reallocate assets while she obtains management and performance fees in discrete time moments. We find...

Diversification is often spoken of as the only free lunch in investing, yet we show that it is not free and is properly considered only in light of its costs. More-exotic asset classes typically come with a higher price tag. We show that fees on diversifying asset classes are high relative to...

There is considerable debate about the size of fees charged by superannuation funds. This paper investigates both investment fees and administration fees and shows that there are economically valid reasons why most investment fees are set at their current level. Our results show that on average,...

Greater skill of active investment managers can mean less fee revenue in a general equilibrium. Although more-skilled managers earn more revenue than less-skilled managers, greater skill for active managers overall can imply less revenue for their industry. Greater skill allows managers to...