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Role of Managerial Incentives and Discretion in Hedge Fund Performance

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AGARWAL, VIKAS, DANIEL, NAVEEN D., NAIK, NARAYAN Y.·2009·The Journal of Finance
DOI 10.1111/j.1540-6261.2009.01499.x
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Abstract

Using a comprehensive hedge fund database, we examine the role of managerial incentives and discretion in hedge fund performance. Hedge funds with greater managerial incentives, proxied by the delta of the option‐like incentive fee contracts, higher levels of managerial ownership, and the inclusion of high‐water mark provisions in the incentive contracts, are associated with superior performance. The incentive fee percentage rate by itself does not explain performance. We also find that funds with a higher degree of managerial discretion, proxied by longer lockup, notice, and redemption periods, deliver superior performance. These results are robust to using alternative performance measures and controlling for different data‐related biases.

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  • Hurdle rate provisions appear less frequently in the sample than in Agarwal et al. (2009).

    “However, hurdle rate provisions appear less frequently in our sample.”

    From The Growth and Performance of Artificial Intelligence in Asset Management (2026) · cites this paper as Agarwal, Daniel, and Naik (2009)

    The paper reports that 61% of its funds had a hurdle rate provision (C. Proxies for Managerial Incentives, p. 16; Table I, p. 42). This establishes the comparison figure, but the source does not report the citing authors’ sample frequency, so it cannot establish that provisions were less frequent there. (LLM, conf=0.82)

    Experimental — accuracy not yet measured

  • Offering shorter lockup and restriction periods imposes implicit incentives to deliver better performance.

    “Offering shorter lockup and restriction periods imposes implicit incentives to deliver better performance (Agarwal, Daniel, and Naik, 2009).”

    From The Growth and Performance of Artificial Intelligence in Asset Management (2026) · cites this paper as Agarwal, Daniel, and Naik, 2009

  • High-water mark provisions are present in 86% of fund-month observations.

    “High-water mark provisions are present in 86% of fund-month observations, consistent with the 80% prevalence in their sample.”

    From The Growth and Performance of Artificial Intelligence in Asset Management (2026) · cites this paper as Agarwal, Daniel, and Naik (2009)

  • The average incentive fee among hedge funds in the sample is 15.7%.

    “The average incentive fee among hedge funds in our sample is 15.7%, closely matching the 16.3% reported in Agarwal, Daniel, and Naik (2009).”

    From The Growth and Performance of Artificial Intelligence in Asset Management (2026) · cites this paper as Agarwal, Daniel, and Naik (2009)

    The citing sentence attributes the 16.3% figure to Agarwal, Daniel, and Naik; the 15.7% figure describes the citing authors’ own sample. Our copy discusses incentive-fee rates (p. 6) and reports other sample statistics (p. 16), but searches for 16.3%, 0.163, and the mean incentive fee did not locate that figure. (LLM, conf=0.72)

    Experimental — accuracy not yet measured

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Percentages, sums and reported differences re-computed from the paper’s own numbers.

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Cites

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Authors
AGARWAL, V., DANIEL, N. D., & NAIK, N. Y.
ORCID
Venue
The Journal of Finance
Publisher
Wiley
Published
2009-09-28
Volume
64
Issue
5
Pages
2221-2256
ISSN
  • 0022-1082 (ISSN-L)
  • 1540-6261
DOI
10.1111/j.1540-6261.2009.01499.x
OpenAlex
W3122905682
Cited by
688
References
2
Citations by year
2026: 16 · 2025: 23 · 2024: 59 · 2023: 15 · 2022: 28 · 2021: 40 · 2020: 25 · 2019: 31 · 2018: 44 · 2017: 29 · 2016: 42 · 2015: 42 · 2014: 38 · 2013: 57 · 2012: 59
FWCI
98.09
Type
journal article
Language
en
Open access
Licence
onlinelibrary.wiley.com/termsAndConditions#vor (vor)
Locations
  • The Journal of Finance (publishedVersion)
  • SSRN Electronic Journal (acceptedVersion)
  • London Business School Research Online (London Business School) (acceptedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
  • Econstor (Econstor) (submittedVersion)
Funders
  • Georgia State University
  • BNP Paribas Cardif
  • Inquire Europe
Topics
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
  • Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
  • Social Sciences › Business, Management and Accounting › Accounting › Private Equity and Venture Capital
Keywords
hedge fund performance, managerial incentives, managerial discretion, managerial ownership, lock-up period, redemption period, performance persistence

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