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Ciclo seminarios CEA – MIPP


13:00 horas, Sala Consejo, Ingeniería Industrial, Torre Oriente (Beauchef 851, 4to piso, Santiago)

El Centro de Economía Aplicada (CEA) y el Instituto Milenio para la Investigación en Imperfecciones de Mercado y Políticas Públicas (MIPP) de la Universidad de Chile invitan a su ciclo de seminarios programados para el segundo semestre del año.

Invitado: Herve Roche, Universidad Adolfo Ibáñez

Título de la conferencia: “Hedge Fund Fee Structure and Risk Exposure: Theory and Empirical Evidence”

We solve in closed form the optimal investment strategy of an infinitely lived risk neutral hedge fund manager compensated by a management fee and a high water mark (HWM) contract. The fraction of asset under management (AUM) allocated in equity is a convex increasing function of the distance to the HWM as moving away from the HWM is increasingly bad news both for management and incentive fees. This convexity effect is enhanced by the size of the incentive fee rate. The higher the management fee rate, the larger the risk exposure, as the revenue insurance effect gets magnified. Frequently beating by a small amount the HWM is optimal as it mitigates the ratchet feature of the HWM. Data seem to support the theoretical predictions of the model: returns’ volatility is strongly related to distance to the HWM: being 20% underwater is associated with an increase of 192 bps in the ex-post returns’ volatility. Also consistent, the time elapsed between hits and the extent to which the fund surpasses the HWM both increase with distance to the HWM. An extension shows that a fund termination threat reduces risk taking behavior as the fund drifts away from the HWM, which is consistent with our empirical findings.

Más información

Confirmaciones: Olga Barrera / obarrera@dii.uchile.cl