| Performance Fees - Risk and Remedies
The key problem with
asymmetric performance
fees (the most common type of performance fee used by investment funds) is that they also carry an incentive to increase risk.
The white paper below explains and quantifies how six remedies can be
used to suppress the
performance fee's undesirable risk-maximizing incentive while not
diminishing its desirable return-maximizing incentive.
Supplementary
Documentation
The three
white papers that are listed below contains additional documentation for the arguments
regarding the risk of using performance fees described above in ViamInvest’s
white paper on performance fees. Specifically, it shows the distribution
of return and risk to respectively investors and performance fee
receivers for four different fund and fee situations and they are 1) use
of leverage or not, 2) use of long-term or short-term performance fees,
3) use of alpha neutral or alpha negative hurdle rates, and 4) use of
highly correlated or non-correlated hurdle rates.
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Mathiesen, Henrik (2009). “Stylized Simulation
Collection - StDev 16.46% at mean 10%,” White paper, ViamInvest,
27 pages.
Download paper
PDF.
-
Mathiesen, Henrik (2009). “Stylized Simulation
Collection - StDev 14.41% at mean 10%,” White paper, ViamInvest,
27 pages.
Download paper PDF.
-
Mathiesen, Henrik (2009). “Stylized Simulation
Collection - StDev 18.52% at mean 10%,” White paper, ViamInvest,
27 pages.
Download paper
PDF.
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