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Are Mutual Fund Managers Paid for Investment Skill?

Author

Listed:
  • Markus Ibert
  • Ron Kaniel
  • Stijn Van Nieuwerburgh
  • Roine Vestman

Abstract

Compensation of mutual fund managers is paramount to understanding agency frictions in asset delegation. We collect a unique registry-based dataset on the compensation of Swedish mutual fund managers. We find a concave relationship between pay and revenue, in contrast to how investors compensate the fund company (firm). We also find a surprisingly weak sensitivity of pay to performance, even after accounting for the indirect effects of performance on revenue. Firm-level fixed effects, revenues, and profits add substantial explanatory power for compensation. Received April 25, 2017; editorial decision August 21, 2017 by Editor Matthew Spiegel. Authors have furnished supplementary code, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Markus Ibert & Ron Kaniel & Stijn Van Nieuwerburgh & Roine Vestman, 2018. "Are Mutual Fund Managers Paid for Investment Skill?," The Review of Financial Studies, Society for Financial Studies, vol. 31(2), pages 715-772.
    • Handle: RePEc:oup:rfinst:v:31:y:2018:i:2:p:715-772.
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    More about this item

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G2 - Financial Economics - - Financial Institutions and Services
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations

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