Research On Chinese Public Offering Fund Management Fee Incentives

Most of China's public offering funds charge management fees by a fix proportion of the net asset value of the funds.This inelastic management fee structure allows the fund management companies earn high management fees income whether the fund's performance is good or not.Under the mechanism without risk incentives and investment loss risk compensation restraint,and this mechanism leads to fund managers lack of the driving force of profit,and the existing institutional arrangement is difficult to encourage fund managers to make effort to achieve the maximum income for the interest of the fund investors,and the high management fees the fund investors payed is also not able to get the appropriate return.Furthermore,the existing institutional arrangements may also induce fund managers raise the net assets value of the funds to obtain higher management fees through insider trading and other illegal means to manipulate the related fund assets prices,and this makes China's capital market difficult to development healthily.The fund embodies a typical principal-agent relationship.Fund investors are in the position of principal with the beneficial right,and the fund manager is in the agent status with the management right,and the fund management fee is the incentive fee.This kind of principal-agent relationship determines the possible interest conflict of fund investors and fund managers,and the information asymmetry makes the fund investors face the moral hazard of fund managers.This moral hazard is unavoidable,but reasonable institutional arrangements can play a role in regulation and control of this moral hazard.Based on the above understanding,from the perspective of the interests of investors and principal-agent theory,this paper mainly studied the public offering fund management fees in China in order to enhance the incentive effect of public offering fund management fees,reduce the agent risk and provide reference for the construction of China's securities investment fund market.Firstly,this paper introduces the historical changes and the present situation of the public offering fund management fee in China,and propose the weakness of the current fixed management fee system.After that,this paper introduces the current situation of the fund management fee in the United States,and by referring to the mature system of the United States and combining with the existing market environment in China,the paper presents some direction of reform.Subsequently,this paper analyzes the principal-agent relationship in the public fund investment.Then this paper uses the principal-agent model to model the management fee contract of the present fixed rate system in China,and points out why the incentive is weak and moral problems appear under this system.On the basis of modeling the present management fee system in China,this paper designs two kinds of linear incentive contract:absolute performance incentive system and relative performance incentive system.Then this paper derives the expression for the optimal incentive coefficient,the optimal effort of fund managers and the expected utility of fund investors of the above three incentive system.The results show that the absolute performance incentive system doesn't excel the present system,while the relative performance incentive system is better than the other two systems.That is,with the same fund size and fund management fee payment,the manager will work harder under the relative performance incentive system.Then,based on the data of the open-ended blend funds from 2011 to 2015,this paper uses the panel data model to validate the incentive effects of the public offering fund management fees in China.The empirical results show that the fund performance is negatively related to the scale of the fund management fee,and the portfolio risk of the fund is negatively related to the scale of the fund management fee as well.That is,the fixed management fee system doesn't lead to excessive speculation,but the incentive effects of the fixed management fee are weak to the fund manager.Chinese fixed management fee system is an inefficient institutional arrangement which need reform.Finally,in order to overcome the shortcomings of the current fixed management fee system and improve the incentive mechanism of China's public offering fund management fees,this paper proposes two linear incentive contracts:absolute performance incentive system and relative performance incentive system to improve the existing system.According to the results of theoretical analysis and the reality of China's fund industry,this paper puts forward the design of the incentive contract of public offering fund management fees and the suggestion to guarantee implementation of the management fee contract.By doing so,this paper provide reference for China's fund industry.