I study a registry-based dataset of Swedish mutual fund managers’ personal portfolios. The majority of managers do not invest personal wealth into the very same funds they professionally manage. The managers who do invest personal money into their funds subsequently outperform the managers who do not. The results suggest that fund managers, in contrast to regular investors, are certain about their ability to generate an abnormal return, or lack thereof, and invest their personal wealth accordingly.

We study the equity, cash, and corporate bond risk premium expectations of asset managers, investment consultants, wealth advisors, public pension funds, and professional forecasters. Subjective risk premia vary one-to-one with objective risk premia that are available in real time and countercyclical. Despite their significant time-series variation, several subjective equity premia vary more in the cross-section of institutions than in the time series. This heterogeneity persists both over time and across asset classes. We tie the heterogeneity in subjective equity return expectations to heterogeneous expectations about long-term equity valuations: some institutions believe that the price–earnings ratio behaves like a random walk, whereas others believe in varying degrees of mean reversion.

Abstract Collecting large asset managers’ capital market assumptions, we revisit the relationships between subjective equity premium expectations, equity valuations, and financial portfolios. In contrast to the well-documented extrapolative expectations of retail investors, asset managers’ equity premium expectations are countercyclical: they are high (low) when valuations are low (high). We find that asset managers’ portfolios reflect their heterogeneous expectations: allocation funds of asset managers with larger U.S. equity premium expectations invest significantly more in U.S. equities. The sensitivity of portfolios to expectations seems to be muted by investment mandates and is smaller than the one predicted by a standard portfolio choice model.

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.