Are Mutual Fund Managers Paid For Investment Skill?
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 revenues and profits add substantial explanatory power for compensation to manager-level revenue and performance, highlighting the importance of the mutual fund firm.
First draft: February 10, 2017. The authors gratefully acknowledge financial assistance from grants obtained from the NYU Stern Center for Global Business and the Economy (2013), Simon School of Business (2013), and Stockholm University. The research leading to these results has received funding from the European Research Council under the European Union’s Seventh Framework Programme (FP7/2007-2013) / ERC Grant Agreement no. . We are grateful to Mohsan Bilal, Vadim Elenev, Annja Karlsson, Louise Lorentzon, Mikael Nordin, and Anh Tran for excellent research assistance. We thank Petter Lundberg at SCB for assistance with our data files. We also benefited from several conversations with current and former Swedish mutual fund managers and owners of mutual fund companies. We thank Xavier Gabaix, Ralph Koijen, Lubos Pastor, Andrei Simonov, Robert Stambaugh, Paul Tetlock, Jules van Binsbergen, Mindy Zhang, and seminar participants at the University of Illinois at Urbana-Champaign, the University of Pennsylvania's Wharton School, and Washington University at St. Louis for comments and suggestion. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Markus Ibert & Ron Kaniel & Stijn Van Nieuwerburgh & Roine Vestman, 2018. "Are Mutual Fund Managers Paid for Investment Skill?," The Review of Financial Studies, vol 31(2), pages 715-772. citation courtesy of