Carrot and stick: A role for benchmark-adjusted compensation in active fund management

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dc.coverageDOI: 10.1016/j.jfi.2022.100981
dc.creatorSotes-Paladino, Juan
dc.creatorZapatero, Fernando
dc.date2022
dc.date.accessioned05-01-2026 18:04
dc.date.available05-01-2026 18:04
dc.description<p>Investors delegating their wealth to privately informed managers face not only an intrinsic asymmetric information problem but also a potential misalignment in risk preferences. In this setting, we show that by tying fees symmetrically to the appropriate benchmark investors can tilt a fund portfolio toward their optimal risk exposure and realize nearly all the value of managers’ information. They attain these benefits despite an inherent inefficiency in the choice of the benchmark, and at no extra cost of compensating managers for exposure to relative-performance risk. Under certain conditions, benchmark-adjusted performance fees are necessary to prevent passive alternatives from dominating active management. Our results shed light on a recent debate on the appropriate fee structure of active funds in contexts of high competition from passive funds.</p>eng
dc.descriptionInvestors delegating their wealth to privately informed managers face not only an intrinsic asymmetric information problem but also a potential misalignment in risk preferences. In this setting, we show that by tying fees symmetrically to the appropriate benchmark investors can tilt a fund portfolio toward their optimal risk exposure and realize nearly all the value of managers’ information. They attain these benefits despite an inherent inefficiency in the choice of the benchmark, and at no extra cost of compensating managers for exposure to relative-performance risk. Under certain conditions, benchmark-adjusted performance fees are necessary to prevent passive alternatives from dominating active management. Our results shed light on a recent debate on the appropriate fee structure of active funds in contexts of high competition from passive funds.<br/><br/>spa
dc.identifierhttps://investigadores.uandes.cl/en/publications/65505a8f-f9a6-4638-ad6b-8be1ae93acfd
dc.languageeng
dc.rightsinfo:eu-repo/semantics/restrictedAccess
dc.sourcevol.52 (2022)
dc.subjectAsymmetric information
dc.subjectBenchmarking
dc.subjectFulcrum fees
dc.subjectPassive management
dc.subjectPortfolio delegation
dc.subjectPortfolio delegation
dc.subjectBenchmarking
dc.subjectFulcrum fees
dc.subjectAsymmetric information
dc.subjectPassive management
dc.titleCarrot and stick: A role for benchmark-adjusted compensation in active fund managementeng
dc.typeArticleeng
dc.typeArtículospa
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