Determinants and implications of fee changes in the hedge fund industry

Vikas Agarwal and Sugata Ray

No 11-09, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: We examine the determinants and consequences of changes in hedge fund fee structures. We show that fee changes are asymmetric with much greater incidence of fee increases compared to fee decreases. We find that managers of younger and smaller funds are more likely to increase fees after good performance. Investors view the fee increases following good performance as a signal of managerial ability only to be disappointed by their worse future performance. Taken together, these findings are consistent with opportunistic behavior of emerging fund managers in expropriating surplus from their investors.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:1109

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