FIN-02-004 |
NYU Stern School of Business |
July 2002
Simon Gervais, Anthony W. Lynch and David K. Musto
ABSTRACT
Because a money manager learns more about her skill from her management experience than
outsiders can learn from her realized returns,she expects inefficiency in future contracts that
condition exclusively on realized returns.A fund family that learns what the manager learns can
reduce this inefficiency cost if the family is large enough.The family’s incentive is to retain any given manager regardless of her skill but,when the family has enough managers,it adds value by boosting the credibility of its retentions through the firing of others.In this way,large fund families add value through cross-sectional reputation.As the number of managers grows the efficiency loss goes to zero.
Simon Gervais
Institution: Finance Department, Wharton School, University of Pennsylvania, Steinberg Hall - Dietrich Hall, Suite 2300, Philadelphia, PA 19104-6367
Telephone: (215) 898-2370
Email: gervais@wharton.upenn.edu
Anthony W. Lynch
Institution: Stern School of Business, New York University, 44th West 4th Street, New York, NY 10012-1126
Telephone: (212) 998-0350
Fax: (212) 995-4223
Email: alynch@stern.nyu.edu
Homepage: http://www.stern.nyu.edu/~alynch
David K. Musto
Institution: Finance Department, Wharton School, University of Pennsylvania, Steinberg Hall - Dietrich Hall, Suite 2300, Philadelphia, PA 19104-6367
Telephone: (215) 898-4239
Email: musto@wharton.upenn.edu
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