Incentive Contracts in Delegated Portfolio Management

• 成果类型: Article
• 署名作者: Li, C. Wei; Tiwari, Ashish
• 署名单位: Louisiana State University System; Louisiana State University; University of Iowa
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhp013
• 发表日期: 2009
• 页码: 4681
• 关键词: Moral hazard; performance; RISK; COMPENSATION; DESIGN

摘要

This article analyzes optimal nonlinear portfolio management contracts. We consider a setting in which the investor faces moral hazard with respect to the effort and risk choices of the portfolio manager. The employment contract promises the manager: (i) a fixed payment, (ii) a proportional asset-based fee, (iii) a benchmark-linked fulcrum fee, and (iv) a benchmark-linked option-type bonus incentive fee. We show that the option-type incentive helps overcome the effort-underinvestment problem that undermines linear contracts. More generally, we find that for the set of contracts we consider, with the appropriate choice of benchmark it is always optimal to include a bonus incentive fee in the contract. We derive the conditions that such a benchmark must satisfy. Our results suggest that current regulatory restrictions on asymmetric performance-based fees in mutual fund advisory contracts may be costly. (JEL G11, G12, D82, D86)