Carrot and stick: a risk-sharing rationale for fulcrum fees in active fund management

Key Points

• Fulcrum fees can effectively align the interests of fund managers and investors, maximizing returns and minimizing risks.
• The study identifies how implementing risk-sharing mechanisms can lead to enhanced fund performance over traditional fee structures.
• Analysis of various investment strategies highlights the advantages of performance-based fees, promoting accountability among fund managers.
• These insights may guide policymakers and investors towards adopting improved fee models in active fund management.

Abstract