Essays in delegated portfolio management

This thesis consists of three chapters of independent but related work that investigate theoretically and empirically the organizational forms of delegated portfolio management. The first chapter proposes a theory of the organizational forms of investment vehicles based on adverse selection. Investors delegate the management of a pool of assets to an agent because of her superior but privately known ability. To tell managerial types apart, investors design compensation contracts that allow them to screen between managers of different abilities. We demonstrate that such a separation is possible in equilibrium when the proposed form of investment vehicle offers to investors debt and equity claims, such as a collateralized debt obligation. This organizational form will attract managers of high ability. Instead, lower ability managers will choose to manage structures that offer pure equity claims to investors, such as closed end funds, an organizational form arising only in a pooling equilibrium. The second chapter builds upon Chapter 1 and extends the theoretical framework to analyze the organizational determinants of equity structures such as open-end funds, closed-end funds and hedge funds. The analysis determines conditions for which each type of structure will arise in equilibrium. We show that managers will self select and choose a hedge fund structure when their investment skills exceed a minimum level. Managers below that threshold level will choose to manage either a closed-end or an open-end fund. The decision to open or close a fund does not only depend on managerial ability but also on the liquidity of the underlying assets. As such, it might well be the case that the decision to open a fund, given prior beliefs of low managerial ability,

Department dc:contributor.department

Sloan School of Management.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2004

Author dc:creator

• Papastaikoudi, Ioanna, 1977-

Advisor dc:contributor.advisor

• Stephen A. Ross.

• Sloan School of Management.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

en_US

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/28603

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/28603