communication: Flow of funds, High Water Mark and asset allocation
speaker: Emilio Baruccispeaker: Gaetano La Bua
speaker: Daniele Marazzina
abstract: The effect of fund inflowoutflow on asset management is a hot research topic. In a path breaking contribution, Basak and co-authors show that inflowsoutflows related to the performance of the fund with respect to that of a benchmark generate a risk shifting incentives in a finite range. This talk is based on two contributions. In the first one, we analyze the asset manager's portfolio problem when he is remunerated through a High Water Mark incentive fee and a management fee and the assets under management are characterized by inoutflow of funds. The presence of a flow fund induces risk in excess in case of a High Water Mark defined on the pure performance of the fund. Instead a High Water Mark defined on the assets under management leads to a more prudent investment strategy. In the second one, we study the case in which the manager's salary is based on the relative performance of the fund with respect to the benchmark. The dynamic of the fund is again affected by the presence of inflows and outflows: in fact, a positive performance induces an inflow to the fund, a negative performance causes an outflow. We provide analytical solutions, and we test how different levels of relative performance with respect to the benchmark affect the managers' riskshifting incentives.
timetable:
Thu 28 Jan, 17:30 - 19:00, Aula Bianchi Scienze
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