BUSI 4502 Lecture Notes - Lecture 12: S&P 500 Index
30 Aug 2018
School
Department
Course
Professor
Document Summary
Performance based investment fees (pbfs) is often used to directly tying rewards to results for managers. According to callan survey, over of the plan sponsors and 1/3 of the money managers sampled currently involved in the pbf arrangements. Pbfs have the ability to influence the investment behavior of managers and could potentially harm client"s investment in the long run. The author suggest clients to monitor the pbf arrangements closely with their managers. If the managers manage to meet the target return, clients will have to pay them a fulcrum fee. If the managers exceed the target return, the additional profit is split between the clients and managers. In conclusion, good managers and bad clients should prefer pbfs. Only sophisticated clients have the resources hire good managers and implement effective pbf arrangements. They are required to set appropriate benchmarks, setting reasonable terms and developing manager-monitoring systems. The good managers are expected to produce above average return.
