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Portfolio Manager Compensation in the U.S. Mutual Fund Industry

by  Linlin Ma, Yuehua Tang*, Juan-Pedro Gómez

ARTICLE | Journal of Finance | Vol. 74, 2019


We study compensation contracts of individual portfolio managers using handcollected data of over 4,500 U.S. mutual funds. Variations in the compensation structures are broadly consistent with an optimal contracting equilibrium. The likelihood of explicit performance-based incentives is positively correlated with the intensity of agency conflicts, as proxied by the advisor’s clientele dispersion, its affiliations in the financial industry, and its ownership structure. Investor sophistication and the
threat of dismissal in outsourced funds serve as substitutes for explicit performance based incentives. Finally, we find little evidence of differences in future performance associated with any particular compensation arrangement.
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