Fee Speech: Signalling and the Regulation of Mutual Fund Fees

Sanjiv Ranjan Das and Rangarajan K. Sundaram

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

Abstract: The Investment Advisers Act of 1940 (as amended in 1970) prohibits mutual funds in the US from offering their advisers asymmetric "incentive fee" contracts in which the advises are rewarded for superior performance via-a-vis a chosen index but are not correspondingly penalized for underforming it. The rationale offered in defense of the regulation by both the SEC and Congress is that incentive fee structures of this sort encourage "excessive" risk-taking by advisers.

Date: 1999-04-04
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