Fund Management Mechanism Of Principal-agent Analysis

In recent years, with the rapid development of China’s fund industry, the asset size ofthe fund industry increases significantly, but a lot of problems exposed at the same time.The most prominent issue is that the fixed rate management fees is questioned by thepublic. And the most important reason is that whether the fund’s performance is good ornot, the fund companies are able to earn lots of management fees from the Fund’s asset.What’s the best way to charge management fees is the problems which has become thebottleneck in the development of China’s fund industry. To solve the problem effectively isthe key to the development of the fund industry’s future. By using the principal-agenttheory, this paper tries to find out the optimal mechanism of management fee.Firstly, this paper makes a brief description of the theory about the securitiesinvestment funds, and then analyzes the implementation of the fund management fees inU.S. and the shortcomings of China’s fund management fees mechanism. Subsequently, byestablishing the single-stage and multi-stage principal-agent model, this paper research3counting-drawing methods of fund management fees: fixed rate, absolute performancemotivation and relative performance motivation. The research tells us that in thesingle-stage absolute performance motivation and relative performance motivation fixedare all efficient to make the fund manager to work hard, but not the fixed rate method. Andthe paper also gives concrete expression of the the incentive coefficient of the fundmanagement fee contract by solving the principal-agent model. In the multi-stage model,this article assumes that the fund investor can take the strategy to adjust the investmenteach term or take the passive-hold strategy. The result proves that in both cases, bymaximizing the long-term gains, fund managers will also work hard even in the fixed-ratesystem. This result provides a realistic basis for the long-term existence of the fixed ratesystem.