The Optimal Size of Hedge Funds: Conflict between Investors and Fund Managers

• 成果类型: Article
• 署名作者: Yin, Chengdong
• 署名单位: Purdue University System; Purdue University
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12413
• 发表日期: 2016
• 页码: 1857-1894
• 关键词: HIGH-WATER MARKS; Mutual funds; risk-taking; performance; incentives; COMPENSATION; FLOWS; fees

摘要

This study examines whether the standard compensation contract in the hedge fund industry aligns managers' incentives with investors' interests. I show empirically that managers' compensation increases when fund assets grow, even when diseconomies of scale in fund performance exist. Thus, managers' compensation is maximized at a much larger fund size than is optimal for fund performance. However, to avoid capital outflows, managers are also motivated to restrict fund growth to maintain style-average performance. Similarly, fund management firms have incentives to collect more capital for all funds under management, including their flagship funds, even at the expense of fund performance.