Risking or Derisking: How Management Fees Affect Hedge Fund Risk-Taking Choices

• 成果类型: Article
• 署名作者: Yin, Chengdong; Zhang, Xiaoyan
• 署名单位: Renmin University of China; Tsinghua University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhac046
• 发表日期: 2023
• 页码: 904
• 关键词: HIGH-WATER MARKS; COMPENSATION; incentives; time

摘要

Hedge fund managers' risk-taking choices are influenced by their compensation structure. We differ from most studies that focus on incentive fees and the high-water mark by examining how management fees affect managers' risk-taking. Our simple model shows that managers' risk-taking is negatively related to their future management fees. Using fund-level data, we find that future management fees are the dominant component of managers' total compensation. When the contribution of future management fees increases, managers reduce risk-taking to increase survival probabilities. Moreover, funds with higher decreasing returns to scale are more sensitive to future management fees and reduce risk-taking even more.