Role of managerial incentives and discretion in hedge fund performance



Authors / Editors

Agarwal V; Daniel N D; Naik N Y


Publication Year



Using a comprehensive database of hedge funds, we examine the role of managerial incentives and discretion in the performance of hedge funds. We find that hedge funds with greater managerial incentives as proxied by delta of option-like incentive fee contract, managerial ownership, and high-water mark provision are associated with superior performance. Incentive fees have no explanatory power for future returns. We also find that funds with higher degree of managerial discretion, proxied by longer lockup, notice, and redemption periods, are associated with superior performance. Our results are robust to various alternate specifications including using alternative performance measures, allowing for nonlinearity for managerial discretion, using different econometric specifications, and controlling for different data-related biases.

Publication Notes

This paper has been revised and replaced by HF-0??

Publication Research Centre

Hedge Fund Centre

Series Number



BNP Paribas Hedge Fund Centre Working Paper Series