Because a money manager learns more about her skill from her management experience than outsiders can learn from her realized returns, she expects inefficiency in future contracts that condition exclusively on realized returns. A fund family that learns what the manager learns can reduce this...

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...