Pricing Traditional versus Alternative Asset Management Services

The delegation of asset management services is a source of potential agency problems between investors and their portfolio managers.

Author(s):

Francois-Serge Lhabitant

Associate Professor of Finance, EDHEC Business SchoolHead of Investment Research at Kedge Capital

Most of these problems can be avoided by using an adequate compensation theme. While the academic literature tends to be somewhat inconclusive as to whether or not, and to what degree, optimal compensation should be linked to relative or absolute performance, industry practice seems to show a clear pattern: mutual funds charge an asset-based fee, while hedge funds charge both an asset-based fee and a performance fee. Hereafter, we discuss the advantages and drawbacks of both types of fees.

Type: Working paper
Date: le 04/04/2005
Research Cluster : Finance

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