Private hedge fund firms' incentives and performance: Evidence from audited filings
Hutchinson, Mark C.
Nguyen, Quang Minh Nhi
Routledge - Taylor & Francis Group
Using an entirely new dataset of audited filings from firms that manage hedge funds, this study examines whether the hedge fund compensation contract aligns managerial incentives and investor interests. Our novel dataset allows us to distinguish between firms focused exclusively on hedge fund management and diversified firms offering products in addition to hedge funds. Our results for compensation data of hedge fund only management firms confirm that compensation increases as assets under management increase, despite increased costs and performance diseconomies of scale. Hedge funds managed by diversified firms have significantly lower performance. A relatively small proportion of the compensation from these firms is generated from hedge funds. The results are consistent with diversified hedge fund firms having weaker alignment between managerial incentives and investment performance.
General , Investment decisions , Other private financial institutions , Pension funds , Portfolio choice
Hutchinson, M. C., Nguyen, Q. M. N. and Mulcahy, M. (2021) 'Private hedge fund firms' incentives and performance: Evidence from audited filings', European Journal of Finance. doi: 10.1080/1351847X.2021.1954966
© 2021, the Authors. Published by Informa UK Limited, trading as Taylor & Francis Group This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License (http://creativecommons. org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way.