Incentive Contracts and Hedge Fund Management

  title={Incentive Contracts and Hedge Fund Management},
  author={Jens Carsten},
  • Jens Carsten
  • Published 2005
This paper investigates dynamically optimal risk-taking by an expected-utility maximizing manager of a hedge fund. We examine the effects of variations on a compensation structure that includes a percentage management fee, a performance incentive for exceeding a specified highwater mark, and managerial ownership of fund shares. In our basic model, there is an exogenous liquidation barrier where the fund is shut down due to poor performance. We also consider extensions where the manager can… CONTINUE READING