More competition in delegated portfolio management: A win-win situation? An experimental analysis

With a novel design, we investigate how competition between fund managers and disclosure of other managers' fees and performance influence fees, risk taken, earnings and investor concentration in a fund management experiment. We find that more competition and disclosure leads to a significant reduction of fees – the relative decrease being larger for Management Fees than for Performance Fees. While the decrease in fees does not affect manager's investment strategies, it significantly increases investors' readiness to entrust their funds to a manager. This leads to higher overall earnings, with the benefits going to investors and those fund managers who are able to attract investors. While there is an extensive literature arguing that a competitive environment may lead to unwanted outcomes, our results suggest that more competition is mostly beneficial to investors and those fund managers that succeed in attracting investors.