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 …

(performance fees) and implicit incentives (fund flows) of asset managers. Funds with performance fees face substantially steeper …We use a unique dataset of European performance-fee mutual funds to examine the interaction between explicit incentives … implicit incentives compared to non-performance-fee funds. Among performance-fee funds, investors' flows depend on the …

Mutual fund managers' compensation packages often contain relative performance-dependent components such as year …, fund investors can suffer utility losses from delegating investment management even if the manager has specialized skill in … identifying good investment opportunities. We show that by properly re-structuring managerial compensation, both the fund manager …