Publication: Peer Versus Pure Benchmarks in the Compensation of Mutual Fund Managers
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Date
2023-11-06
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Cambridge University Press
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Abstract
We examine the role of peer (e.g., Lipper manager indices) versus pure (e.g., S&P 500) benchmarks in fund manager compensation. We model their impact on manager incentives and then test those predictions using novel data. We find that 71% of managers are compensated based on peer benchmarks. Consistent with the model, peer-benchmarked fund managers exhibit higher effort generating higher gross performance and collect higher fee income. Analyzing advisors’ choice between benchmark types, we show that peer-benchmarking advisors cater to more sophisticated and performance-sensitive investors, and are more likely to sell through direct channels, consistent with investor heterogeneity and market segmentation.
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Attribution 4,0 International
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IE Business School
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Evans, R., Gómez, J. P., Ma, L., & Tang, Y. (2020). Peer versus pure benchmarks in the compensation of mutual fund managers. Journal of Financial and Quantitative Analysis, 1-38.