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SUMMARY:The Incentives of Performance Fees\, High-Water Marks and Personal
  Stakes - Moritz Dumbgen
DTSTART:20120515T160000Z
DTEND:20120515T170000Z
UID:TALK37905@talks.cam.ac.uk
CONTACT:Sheryl Anderson
DESCRIPTION:In this paper we present a mathematical framework for the opti
 mal investment problem of a fund manager who gets paid a performance fee a
 nd a management fee from his investors. Through the equivalence to an opti
 mal stopping problem\, we find a simple characterisation of the solution a
 nd an early indicator that performance fees provide precarious incentives.
  We then incorporate more detailed specifications of the fee structure. Th
 e effects of a high-water mark\, a hurdle rate or a manager's personal sta
 ke can all be demonstrated elegantly. Finally\, we increase the complexity
  of our model by relaxing the conditions on the underlying assets and allo
 wing for investors to enter and leave the fund over time\, according to it
 s performance. Our framework still allows for an illustrative characterisa
 tion of the manager's incentivisation in this case and we turn to numerica
 l methods to demonstrate concrete examples.
LOCATION:Lucia Windsor Room\, Newnham College
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