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A Characterization of Optimum Fee Schemes for Delegated Portfolio Management

Author

Listed:
  • Shin Kobayashi

    (Graduate School of Economics, Waseda University)

  • Takuya Arai

    (Mercer Japan Ltd.)

Abstract

We examine a moral hazard problem on delegated portfolio management. Focusing on amounts of assets under management (AUM), we investigate the existence of optimal fee schemes for asset owners. First, we present the solutions of the first and the second best problem. Next, under some additional restrictions, we characterize the solution of the second best problem. As a result, a kind of incentive fee (an incentive fee with upper bound) is shown to be the only optimum fee scheme.

Suggested Citation

  • Shin Kobayashi & Takuya Arai, 2019. "A Characterization of Optimum Fee Schemes for Delegated Portfolio Management," Working Papers 1910, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:1910
    as

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    References listed on IDEAS

    as
    1. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    2. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-139, May.
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    More about this item

    Keywords

    Delegated portfolio management; Incentive fee scheme; Principalagent model; Alignment; Asset under management;
    All these keywords.

    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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