Hedge fund incentives, management commitment and survivorship

Abstract

Studies investigating the relation between managerial ownership and hedge fund survivorship risk find mixed evidence because these studies fail to control for potential endogeneity of management commitment decision. We document that decisions on management ownership are purposely self-selected. Such decisions are most likely motivated by unique incentive mechanisms imbedded in hedge funds. By accounting for unobserved fund manager motivations that affect both ownership decisions, we find no association between the mortality risk of hedge funds and managerial ownership, which suggests that the conventional argument that having management commitment can reduce survival risk (and therefore align the interests between managers and investors) is significantly overstated. These results are robust to using alternative ownership measures and controlling for different samples.

Skin or Skim? Inside Investment and Hedge Fund Performance

“…for instance, finds that hedge fund firms with concentrated ownership are related to lower performance and suggest possible agency conflicts driving these results.4 SeeMassa (2003),Sialm and Tham (2017),Berk, van Binsbergen, and Liu (2017). 5 SeeAgarwal, Daniel, and Naik (2009),Burasachi, Kosowski, and Sritrakul (2014),Chen, Goldstein, and Jiang (2008), Ackermann, McEnally, and Ravenscraft (1999), Qiu, Tang, and Walter (2016), Ibert, Kaniel, Van Nieuwerburgh, and Vestman (2017, andOzik and Sadka (2015).6 See Yin (2016),Ramadorai (2013). An important branch of this literature examines the role of liquidity and diseconomies of scale, such as: Chen, Hong, Huang, and Kubik (2004),Bris, Gulen, Kadiyala, andRau (2006), andYan (2008).…”

Skin or Skim? Inside Investment and Hedge Fund Performance

“…for instance, finds that hedge fund firms with concentrated ownership are related to lower performance and suggest possible agency conflicts driving these results.4 SeeMassa (2003),Sialm and Tham (2017),Berk, van Binsbergen, and Liu (2017). 5 SeeAgarwal, Daniel, and Naik (2009),Burasachi, Kosowski, and Sritrakul (2014),Chen, Goldstein, and Jiang (2008), Ackermann, McEnally, and Ravenscraft (1999), Qiu, Tang, and Walter (2016), Ibert, Kaniel, Van Nieuwerburgh, and Vestman (2017, andOzik and Sadka (2015).6 See Yin (2016),Ramadorai (2013). An important branch of this literature examines the role of liquidity and diseconomies of scale, such as: Chen, Hong, Huang, and Kubik (2004),Bris, Gulen, Kadiyala, andRau (2006), andYan (2008).…”