DP12010 Are Mutual Fund Managers Paid For Investment Skill?

Author(s):	Marcus Ibert, Ron Kaniel, Stijn van Nieuwerburgh, Roine Vestman
Publication Date:	April 2017
Keyword(s):	financial sector income, mutual fund performance, Portfolio manager compensation
JEL(s):	G00, G23, J24, J31, J33, J44
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=12010

Compensation of mutual fund managers is paramount to understanding agency frictions in asset delegation. We collect a unique registry-based data set 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 revenues and profits add substantial explanatory power for compensation to manager-level revenue and performance, highlighting the importance of the mutual fund firm.