No abstract

This paper examines the relation between the premium on closed-end funds and organizational features of the funds and advisors, including the compensation scheme of the investment advisor. We find that the fund premium is larger when:~a! the advisor's compensation is more sensitive to fund performance;~b! the assets managed by the advisor are concentrated in the fund in question;~c! the advisor manages other funds with low compensation sensitivity to performance and with low concentration of assets managed by the advisor; and~d! the advisor's compensation contract evaluates performance relative to a benchmark. THE GROWTH IN ASSETS UNDER MANAGEMENT by investment companies has motivated both theoretical and empirical interest in the contractual relation-ship between portfolio managers and their clients. 1 This paper considers how the interaction between organization structure, managerial incentives, and managerial behavior determines pricing of shares of closed-end funds. In particular, we examine how the form of the compensation scheme of the fund advisor0manager and the extent to which the assets managed by the fund advisor are spread across multiple funds are related to the premium at which a closed-end fund trades.

No abstract