Performance-based fees

Asset-based fees, under which managers are compensated with a percentage of assets under management, have been the dominant compensation structure used in the investment management industry.

Although there is little evidence that suggests institutional investors will dramatically alter their standard asset-based fee arrangements, the industry has seen growth in the area of performance-based fees. This paper discusses performance based fees as they relate to traditional long only managers and shows that, if structured properly, they can be an attractive alternative to asset based fees.