The Efficiency of Performance-Based Fee Funds


  • The authors would like to thank to an anonymous referee and John Doukas (the editor), for helpful comments. We also like to thank the National Securities Market Commission for providing the data used, and Marina Balboa for her valuable support. The paper also benefited from discussions with seminar participants at the University of Navarra, the University of La Rioja, the University of Valencia, the University of Barcelona, the University of the Balearic Islands, and the European Financial Management 2010 Annual Conference, the 17th Annual Conference of the Multinational Finance Society, the 18th Spanish Financial Forum, and the 35th Symposium of the Spanish Association of Economy. Ana C. Díaz-Mendoza and Miguel A. Martínez acknowledge research support from the Ministry of Science and Innovation, grants ECO2008–00777/ECON and ECO2011–29268, and Basque Government grant IT-241–07. Germán López-Espinosa acknowledges research support from the Ministry of Science and Innovation, grant ECO2008–02599/ECON, from the University of Navarra (PIUNA), and from Navarra Government (Jerónimo de Ayanz program). Any errors or omissions are our own. A previous version of this paper has been published as Working Paper n° 583 in the Fundación de las Cajas de Ahorros (FUNCAS) collection. Correspondence: Miguel A. Martínez.


This paper compares the efficiency of mutual funds that charge management fees based totally or partially on returns (performance) with those that charge them exclusively on assets under management. We analyse Spanish risky mutual funds during 1999–2009 for which both types of management fees are authorised. We find that performance-based fee funds perform significantly better than the other risky funds considered. Moreover, a strongly positive performance-expenses relation is found for such funds, and negative for the other. These results seem to indicate more efficient management in performance-based fee funds, in contrast with their low presence in the fund industry.