Title

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

Publication Type

Working Paper

Publication Date

12-2014

Abstract

Using a hand-collected data set of over 5,000 mutual funds, we study the compensation structures of individual portfolio managers in the U.S. mutual fund industry. About three-quarters of portfolio managers receive performance-linked bonuses from investment advisors. Managers with performance-linked bonuses exhibit superior subsequent fund performance, especially when advisors link pay to performance over a longer time period. In contrast, alternative compensation arrangements, such as fixed salary, assets-based pay, or advisor-profits-based pay are not associated with superior performance. Overall, our study documents novel empirical evidence on the impact of individual portfolio manager compensation on mutual fund performance.

Keywords

Portfolio manager compensation, mutual funds, investment advisors, fund performance

Discipline

Finance and Financial Management

Research Areas

Finance

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