The costs and benefits of performance fees in mutual funds

Henri Servaes and Kari Sigurdsson

No 13399, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Funds with performance fees have annual risk-adjusted returns of 0.50% below other funds, a result mostly due to funds without a stochastic benchmark against which performance is measured and funds with a benchmark that is easy to beat. This is not due to unobservable differences in fund manager quality. Performance fee funds charge total expenses, including the performance fee, that are substantially higher than those of other funds. They are not more volatile than other funds, however. Our results indicate that investors should pay particular attention to the benchmarks employed to compute whether performance fees are paid.

Keywords: Performance fees in mutual funds; Fund returns; Value added; Fund expenses; Risk-taking incentives (search for similar items in EconPapers)
JEL-codes: G23 (search for similar items in EconPapers)
Date: 2018-12
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Costs and Benefits of Performance Fees in Mutual Funds (2022)
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