DP12241 Are Mutual Fund Managers Paid For Investment Skill?

Author(s): Marcus Ibert, Ron Kaniel, Stijn van Nieuwerburgh, Roine Vestman
Publication Date: August 2017
Keyword(s): financial sector income, mutual fund performance, Portfolio manager compensation
JEL(s): G00, G23, J24, J31, J33, J44
Programme Areas: Labour Economics, Financial Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12241

Compensation of mutual fund managers is paramount to understanding agency frictions in asset delegation. We collect a unique registry-based dataset on the compensation of Swedish mutual fund managers. We find a concave relationship between pay and revenue, in contrast to how investors compensate the fund company (firm). We also find a surprisingly weak sensitivity of pay to performance, even after accounting for the indirect effects of performance on revenue. Firm-level fixed effects, revenues, and profits add substantial explanatory power for compensation.