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Key topics
 The big picture
 Stock price formation
 Fundamental value analysis
 
International corp. governance


Incentive mechanisms
 Decision system
 
Performance monitoring
 Incentive based compensation
 Bankruptcy system
 Ownership structure
 Creditor structure
 Capital structure
 Market for corporate control
 
Labor market competition
 
Product market competition


Related topics
 
Transaction cost economics
 Positive economics


 

 
Performance Fees - Risk and Remedies

The key problem with asymmetric performance fees (the most common type of performance fee used by investment funds) is that they also carry an incentive to increase risk. The white paper below explains and quantifies how six remedies can be used to suppress the performance fee's undesirable risk-maximizing incentive while not diminishing its desirable return-maximizing incentive.


Supplementary Documentation

The three white papers that are listed below contains additional documentation for the arguments regarding the risk of using performance fees described above in Alpha Captech’s white paper on performance fees. Specifically, it shows the distribution of return and risk to respectively investors and performance fee receivers for four different fund and fee situations and they are 1) use of leverage or not, 2) use of long-term or short-term performance fees, 3) use of alpha neutral or alpha negative hurdle rates, and 4) use of highly correlated or non-correlated hurdle rates.

   

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