Performance Fees: The Good, the Bad, and the (Occasionally) Ugly

Robert D. Arnott

Financial Analysts Journal, 2005, vol. 61, issue 4, 10-13

Abstract: The topic of performance-based fees is one of the many governance issues that arise in the management of investment assets, the investment process, and the investment enterprise. Performance-based fees are not inherently better or worse than asset-based fees—for sponsor or manager. Performance fees can be a fair and useful tool to align the interests of a manager with those of the clients, a way for clients to cut their overall fee burden, or a way for an investment manager to expropriate large chunks of client wealth. This column explores the subtleties of this fascinating element of the investment business.

Date: 2005
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DOI: 10.2469/faj.v61.n4.2736

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