This article provides a practical framework for assessing performance fees based on standard option pricing models. The fee valuation does not require any expected return or alpha estimate, making this framework transparent, robust, and widely applicable.n Using the framework, the authors show the incentive impact of performance fees and caution against the unintended consequences for manager behaviors.n The article discusses the implications of performance fees in the context of systematic investing. This discussion is especially relevant today as asset owners are increasingly interested in the broader adoption of performance fee structures beyond traditional alternative investments.

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