Journal of Finance Vol. 64 No. 5 2009
Role of Managerial Incentives and Discretion in Hedge Fund Performance
Abstract
Using a comprehensive hedge fund database, we examine the role of managerial incentives and discretion in hedge fund performance. Hedge funds with greater managerial incentives, proxied by the delta of the option-like incentive fee contracts, higher levels of managerial ownership, and the inclusion of high-water mark provisions in the incentive contracts, are associated with superior performance. The incentive fee percentage rate by itself does not explain performance. We also find that funds with a higher degree of managerial discretion, proxied by longer lockup, notice, and redemption periods, deliver superior performance. These results are robust to using alternative performance measures and controlling for different data-related biases.
- DOI
- https://doi-org.simsrad.net.ocs.mq.edu.au/10.1111/j.1540-6261.2009.01499.x
- Volume
- 64
- Issue
- 5
- Pages
- 2221-2256
- Sources
- bibtex:phds-export.bib