TY - JOUR T1 - A Comparative Analysis of Performance Fees JF - The Journal of Portfolio Management SP - 75 LP - 84 DO - 10.3905/jpm.2018.44.7.075 VL - 44 IS - 7 AU - Megan Czasonis AU - Mark Kritzman AU - Baykan Pamir AU - David Turkington Y1 - 2018/07/31 UR - https://pm-research.com/content/44/7/75.abstract N2 - Many investors pay their investment managers fees that include a base component, which is a fixed percentage amount of the fund’s assets, and a performance component, which is a variable amount that is contingent on the performance of the fund. These fee arrangements are typically referred to as performance fees, whereas fee arrangements that do not include a variable component are referred to as flat fees. In this article, the authors provide a comprehensive, ex ante comparative analysis of returns net of fees, taking into account a wide range of features in the structure of the fees, the performance of the managers, and the preferences of the investor. Because the interaction of these features is complex and often subtle, the authors cannot adequately evaluate after-fee performance based simply on the mean and dispersion of the after-fee return nor on the implied option value of the fee. Instead, they employ simulation to produce ex ante distributions of after-fee performance and use the certainty equivalents of these distributions to compare alternative fee arrangements.TOPICS: In portfolio management, portfolio management/multi-asset allocation ER -