Contract Evaluation Horizon and Fund Performance
Publication Date
11-12-2025
Abstract
Mutual funds face the risk of withdrawals if they perform poorly in the short term, which encourages manager myopia. We show that fund families can insulate managers from this funding pressure by tying compensation to long-term fund performance. Managers with long-horizon contracts are more likely to undertake long-term investments and outperform their constrained peers. Since long-horizon pay does not shut off the funding pressure but simply insulates the manager from it, not all families can offer these contracts. Long-horizon contracts are more prevalent in families that cater to patient investors and have more resources to buffer temporary liquidity shocks.
Document Type
Article
Keywords
Mutual Funds, Evaluation Horizon, Compensation Contracts, Performance, Managerial Myopia
Disciplines
Finance
Source
SMU Cox: Finance (Topic)
Language
English
