Authors / Editors
Agarwal v; Daniel N D; Naik N Y
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 delta of option-like incentive fee contracts, managerial ownership, and high-water mark provisions, are associated with superior performance. 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, employing different econometric specifications, permitting nonlinearity for managerial discretion, and controlling for different data-related biases.
This is a revision of HF - 019
Publication Research Centre
Hedge Fund Centre
BNP Paribas Hedge Fund Centre Working Paper Series