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Portfolio Manager Compensation in the U.S. Mutual Fund Industry

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  • LINLIN MA
  • YUEHUA TANG
  • JUAN‐PEDRO GÓMEZ

Abstract

We study compensation contracts of individual portfolio managers using hand‐collected data of over 4,500 U.S. mutual funds. Variations in the compensation structures are broadly consistent with an optimal contracting equilibrium. The likelihood of explicit performance‐based incentives is positively correlated with the intensity of agency conflicts, as proxied by the advisor's clientele dispersion, its affiliations in the financial industry, and its ownership structure. Investor sophistication and the threat of dismissal in outsourced funds serve as substitutes for explicit performance‐based incentives. Finally, we find little evidence of differences in future performance associated with any particular compensation arrangement.

Suggested Citation

  • Linlin Ma & Yuehua Tang & Juan‐Pedro Gómez, 2019. "Portfolio Manager Compensation in the U.S. Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 74(2), pages 587-638, April.
    • Handle: RePEc:bla:jfinan:v:74:y:2019:i:2:p:587-638
    DOI: 10.1111/jofi.12749
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