Definition of an Incentive Fee
An incentive fee, also known as a performance fee, is a fee which a client fund may be charged by the investment manager that manages its assets. The cost of performance fee may be calculated many ways and will be dependent upon the contract made with the client. With respect to a separate account, it is often based on the change in net realized and unrealized gains, although in some cases, it can be based on other measures, such as net income generated. While not very common, some fund managers have attempted to link the performance fee to both upward and downward movement in a fund’s gains, such as the shock absorber fee, where the fund manager gets penalized for adverse movement in the fund value. With respect to hedge funds and other investment funds, it is generally calculated by reference to the increase in the client fund’s net asset value, which represents the value of the fund’s investments.
Incentive Fee
What is an ‘Incentive Fee’
An incentive fee is a fee paid to a fund manager by investors. Incentive fees are typically dependent upon the manager’s performance over a given period and are usually taken in relation to a benchmark index. For instance, a fund manager may receive an incentive fee if his or her fund outperforms the S&P 500 Index over a calendar year, and may increase as the level of outperformance grows.
Explaining ‘Incentive Fee’
Incentive fees are usually in place to tie a manager’s compensation to their level of performance, more specifically their level of financial return. However, such fees can sometime lead to increased levels of risk taking, as managers attempt to increase incentive levels through riskier ventures than outlined in a fund’s prospectus.
Further Reading
www.worldscientific.com [PDF] … A second advantage of studying incentives for mutual funds is that these funds exist alongside mutual… This can be expressed as a never-negative incentive fee by stating the fee as a 60… This means that fee rates are always convex over the lower range of performance and are…
www.sciencedirect.com [PDF] … A second advantage of studying incentives for mutual funds is that these funds exist alongside mutual… This can be expressed as a never-negative incentive fee by stating the fee as a 60… This means that fee rates are always convex over the lower range of performance and are…
papers.ssrn.com [PDF] … A second advantage of studying incentives for mutual funds is that these funds exist alongside mutual… This can be expressed as a never-negative incentive fee by stating the fee as a 60… This means that fee rates are always convex over the lower range of performance and are…
academic.oup.com [PDF] … A second advantage of studying incentives for mutual funds is that these funds exist alongside mutual… This can be expressed as a never-negative incentive fee by stating the fee as a 60… This means that fee rates are always convex over the lower range of performance and are…
www.jstor.org [PDF] … A second advantage of studying incentives for mutual funds is that these funds exist alongside mutual… This can be expressed as a never-negative incentive fee by stating the fee as a 60… This means that fee rates are always convex over the lower range of performance and are…
onlinelibrary.wiley.com [PDF] … A second advantage of studying incentives for mutual funds is that these funds exist alongside mutual… This can be expressed as a never-negative incentive fee by stating the fee as a 60… This means that fee rates are always convex over the lower range of performance and are…
jai.pm-research.com [PDF] … A second advantage of studying incentives for mutual funds is that these funds exist alongside mutual… This can be expressed as a never-negative incentive fee by stating the fee as a 60… This means that fee rates are always convex over the lower range of performance and are…
onlinelibrary.wiley.com [PDF] … A second advantage of studying incentives for mutual funds is that these funds exist alongside mutual… This can be expressed as a never-negative incentive fee by stating the fee as a 60… This means that fee rates are always convex over the lower range of performance and are…
www.sciencedirect.com [PDF] … A second advantage of studying incentives for mutual funds is that these funds exist alongside mutual… This can be expressed as a never-negative incentive fee by stating the fee as a 60… This means that fee rates are always convex over the lower range of performance and are…
www.sciencedirect.com [PDF] … A second advantage of studying incentives for mutual funds is that these funds exist alongside mutual… This can be expressed as a never-negative incentive fee by stating the fee as a 60… This means that fee rates are always convex over the lower range of performance and are…
