The Research Of Optimal Fund Management Stimulating Contract

The origin of the fund-management stimulating problem is that the standard of rational agent's activities is utility maximum.But, in the reality, the fund investor and the fund administrator are a kind of consignation and there is information asymmetry. The fund investor (principle) wants to make the fund administrator (agent) act according to the benefits of the former, but the investor can't observe the investment activity of the administrator directly and in time. He can only observe other variables which are decided by the administrator's activity and other outside uncertain factors. The problem that fund investor needs to solve is to design a contract, regarding or punishing administrator according to these observable information to encourage him to choose the activity most beneficial to investor. The theoretical analysis of this stimulating system is built up on the base of optimization analysis under some restrictions, and its basic conclusion is that there should be some unfixed stimulating fee in this contract. But in practice, the management fees of majority funds are withdrawn to a fixed rate. In China, there is no stimulating fee system. Even in America which has advanced finance system, the fund with stimulating fee system only takes up around 2% of total fund. Is it on earth because of the irrationality of fund investors or the failure of theoretical analysis? This paper develops a new economic explanation to fund stimulating system from a Game Theory point of view. According to the analysis of theory and practice, a conclusion has been drawn that there is rationality in fixed rate and the implement of stimulating system is conditional.