Abstract

The growth of financial assets managed by professionals has increased dramatically in the last decade. This growth has occurred in private and public pension funds and investment companies, particularly in mutual funds. The mutual fund industry's growth is impressive, but especially significant is the broad-based nature of the growth. A wide segment of American society has entrusted their future to mutual fund money managers. Money management is not a new phenomenon, it has its roots in insurance companies, pension funds and bank trust departments, but the nature of the interaction between the investor and the money manager has changed. The traditional interaction for most Americans had been indirect; for example, the relationship with an employer pension fund manager or the portfolio manager of a life insurance policy is highly impersonal. The connection between retirement in come and the individuals who manage the assets is given very little thought by the average person. The relationship between an investor and a mutual fund manager is different. First, an investor can pick the manager by choosing a particular fund. Secondly, the investor can follow the performance of the manager in the daily newspaper. What has not changed is the asymmetry of knowledge between the investor and the manager. Given the complexities of investing?and the combining individual investments into a portfolio-the average investor more than ever needs to rely on a money manager. Because of this

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