A Characterization of Optimum Fee Schemes for Delegated Portfolio Management

Shin Kobayashi () and Takuya Arai ()
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Shin Kobayashi: Graduate School of Economics, Waseda University
Takuya Arai: Mercer Japan Ltd.

No 1910, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: We examine a moral hazard problem on delegated portfolio management. Focusing on amounts of assets under management (AUM), we investigate the existence of optimal fee schemes for asset owners. First, we present the solutions of the first and the second best problem. Next, under some additional restrictions, we characterize the solution of the second best problem. As a result, a kind of incentive fee (an incentive fee with upper bound) is shown to be the only optimum fee scheme.

Keywords: Delegated portfolio management; Incentive fee scheme; Principalagent model; Alignment; Asset under management (search for similar items in EconPapers)
JEL-codes: G19 G23 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2019-06
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