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Alternative Investment Performance Fee Arrangements and Implications for SEC Regulatory Policy

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  • Franco Modigliani
  • Gerald A. Pogue

Abstract

This paper first examines the effect of two basic types of investment performance fees, which differ in the method of performance measurement, on the amount and variability of investment advisory compensation. Then this effect is related to the risk borne by fund investors. From this analysis, policy implications for the SEC's regulation of incentive fee plans are drawn, with considerations of equity, resource allocation, and minimization of restrictive rules.

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  • Franco Modigliani & Gerald A. Pogue, 1975. "Alternative Investment Performance Fee Arrangements and Implications for SEC Regulatory Policy," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 127-160, Spring.
    • Handle: RePEc:rje:bellje:v:6:y:1975:i:spring:p:127-160
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    Cited by:

    1. David A. Volkman, 1999. "Market Volatility And Perverse Timing Performance Of Mutual Fund Managers," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(4), pages 449-470, December.
    2. Ning Zhu, 2002. "The Local Bias of Individual Investors," Yale School of Management Working Papers ysm272, Yale School of Management, revised 01 Sep 2009.
    3. Ning Zhu, 2002. "The Local Bias of Individual Investors," Yale School of Management Working Papers ysm272, Yale School of Management, revised 01 Sep 2009.
    4. Athanasios Orphanides, "undated". "Compensation Incentives and Risk Taking Behavior: Evidence from Mutual Funds," Finance and Economics Discussion Series 1996-21, Board of Governors of the Federal Reserve System (U.S.), revised 10 Dec 2019.
    5. Frank Fabozzi & Omar Masood & Radu Tunaru, 2007. "Discrete Variable Chain Graphical Modelling for Assessing the Effects of Fund Managers' Characteristics on Incentives Satisfaction and Size of Returns," The European Journal of Finance, Taylor & Francis Journals, vol. 13(3), pages 269-282.
    6. Judith Chevalier & Glenn Ellison, 1999. "Career Concerns of Mutual Fund Managers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 389-432.
    7. Raimond Maurer, 1998. "Risikoanreize bei der Gestaltung erfolgsabhängiger Entlohnungssysteme für Kapitalanlagegesellschaften," Schmalenbach Journal of Business Research, Springer, vol. 50(6), pages 507-530, June.
    8. T. S. Raghu & P. K. Sen & H. R. Rao, 2003. "Relative Performance of Incentive Mechanisms: Computational Modeling and Simulation of Delegated Investment Decisions," Management Science, INFORMS, vol. 49(2), pages 160-178, February.
    9. George Athanassakos & Jacques A. Schnabel, 1994. "Professional portfolio managers and the January effect: theory and evidence," Review of Financial Economics, John Wiley & Sons, vol. 4(1), pages 79-91, September.

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