The Costs and Benefits of Performance Fees in Mutual Funds

Servaes, H and Sigurdsson, K (2022) The Costs and Benefits of Performance Fees in Mutual Funds. Journal of Financial Intermediation, 50 (100959). ISSN 1042-9573 OPEN ACCESS

Abstract

Funds with performance fees have annual net risk-adjusted returns of 0.50% below other funds, a result mostly due to funds without a stochastic benchmark against which performance is measured and funds with a benchmark that is easy to beat. For other funds, there is no evidence of underperformance. Performance fee funds charge total expenses, including the performance fee, that are substantially higher than those of other funds. Investors are more likely to punish poor performance in funds with performance fees than in other funds. Our results indicate that even when fees are less regulated, investors can generally be relied upon to make the right choices, but that there are a subset of funds where performance fees are employed to extract additional fees from investors.

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Item Type: Article
Subject Areas: Finance
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© 2022 The Authors. Published by Elsevier Inc. This is an open access article under the CC-BY-NC-ND licence https://creativecommons.org/licenses/by-nc-nd/4/0

Date Deposited: 02 Feb 2022 20:28
Date of first compliant deposit: 02 Feb 2022
Subjects: Performance
Investment funds
Rate of return
Financial risk
Last Modified: 14 Jun 2022 06:03
URI: https://lbsresearch.london.edu/id/eprint/2207
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