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

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

  • LINLIN MA
  • YUEHUA TANG
  • AND JUAN‐PEDRO GÓMEZ

Article first published online: 13th December 2018 DOI: 10.1111/jofi.12749

Abstract


We study compensation contracts of individual portfolio managers using hand‐collected 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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