Optimal fund menus

Jakša Cvitanić and Julien Hugonnier

Mathematical Finance, 2022, vol. 32, issue 2, 455-516

Abstract: We study the optimal design of a menu of funds by a manager who is required to use linear pricing and does not observe the beliefs of investors regarding one of the risky assets. The optimal menu involves bundling of assets and can be constructed from the solution to a calculus of variations problem that optimizes over the indirect utility that each type receives. We provide a complete characterization of the optimal menu and show that the need to maintain incentive compatibility leads the manager to offer funds that are inefficiently tilted towards the asset that is not subject to the information friction.

Date: 2022
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https://doi.org/10.1111/mafi.12341

Related works:
Working Paper: Optimal Fund Menus (2018)
Working Paper: Optimal fund menus (2018)
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