Abstract

Performance fees have the potential to significantly increase the costs borne by investors. The asset management industry defends incentive fees because they align the interests of fund managers with those of investors. By offering empirical evidence on the performance of equity funds in Italy, we aim to contribute to the debate regarding incentive fees and their regulation. Our estimates indicate that incentive fee funds not only expose subscribers to higher levels of risk without offering better risk-adjusted performance in return but also are no less expensive than non-incentive fee funds.