Portfolio Manager Compensation in the U.S. Mutual Fund Industry

• Main Authors: Ma, Linlin, TANG, Yuehua, Gomez, Juan-Pedro
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2014
• Subjects: Portfolio manager compensation; mutual funds; investment advisors; fund performance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4545
• Institution: Singapore Management University

Using a hand-collected data set of over 5,000 mutual funds, we study the compensation structures of individual portfolio managers in the U.S. mutual fund industry. About three-quarters of portfolio managers receive performance-linked bonuses from investment advisors. Managers with performance-linked bonuses exhibit superior subsequent fund performance, especially when advisors link pay to performance over a longer time period. In contrast, alternative compensation arrangements, such as fixed salary, assets-based pay, or advisor-profits-based pay are not associated with superior performance. Overall, our study documents novel empirical evidence on the impact of individual portfolio manager compensation on mutual fund performance.