Abstract
We posit a fund manager and an individual investor who maximize the expected (log) utility of their respective terminal wealth. The manager possesses more information than the investor does and charges the latter, her would-be customer, a linear compensation fee. The investor will delegate his portfolio decisions to the manager if and only if the expected utility of his wealth after fees is larger than the expected utility he can achieve by directly investing in the market. Our framework, which uses a result by Amendinger (2000) on initially enlarged filtrations, allows us to characterize compensation fees in terms of information differential.
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