TY - JOUR T1 - Practical Applications of A Comparative Analysis of Performance Fees JF - Practical Applications SP - 1 LP - 6 DO - 10.3905/pa.6.3.302 VL - 6 IS - 3 AU - Megan Czasonis AU - Mark Kritzman AU - Baykan Pamir AU - David Turkington Y1 - 2019/01/31 UR - https://pm-research.com/content/6/3/1.8.abstract N2 - In A Comparative Analysis of Performance Fees, from the Summer 2018 issue of The Journal of Portfolio Management, Megan Czasonis, Baykan Pamir, David Turkington (all at State Street Associates) and Mark Kritzman (of Windham Capital Management) compare flat-fee structures for investment management services with performance-based fee structures. They demonstrate that determining an investor’s preference among different possible fee structures depends on the complex interplay of the fee structure, the expected performance of the investment portfolio, and the investor’s attitude toward risk. The authors argue that the appropriate approach for evaluating performance fees and comparing them with an alternative flat fee is to simulate the distribution of after-fee returns and, given a particular utility function for investors, to use the certainty equivalent of the after-fee return distribution to determine the appropriate fee structure.The authors also explain how the asymmetric nature of performance fees causes the distribution of net returns to be non-normal, even if before-fee returns are normally distributed. This can cause biased results when using tools that treat net returns as normally distributed.TOPICS: In portfolio management, portfolio management/multi-asset allocation ER -