The optimal size of hedge funds: : Conflict between investors and fund managers

• Autores: Chengdong Yin
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 71, Nº 4, 2016, págs. 1857-1894
• Idioma: inglés
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• Resumen

  • This study examines whether the standard compensation contract in the hedge fund industry aligns managers’ incentives with investors’ interests. I show empirically that managers’ compensation increases when fund assets grow, even when diseconomies of scale in fund performance exist. Thus, managers’ compensation is maximized at a much larger fund size than is optimal for fund performance. However, to avoid capital outflows, managers are also motivated to restrict fund growth to maintain style-average performance. Similarly, fund management firms have incentives to collect more capital for all funds under management, including their flagship funds, even at the expense of fund performance