Transparency and talent allocation in money management

We construct and analyze the equilibrium of a model of delegated portfolio management in which money managers signal their investment skills via fund transparency. To lower the costs of transparency, high-skill managers rely on their performance to separate from low-skill managers over time. In contrast, medium-skill managers rely on transparency to separate, especially when it is difficult for investors to tell them apart through performance alone. Low-skill managers mimic high-skill managers in opaque funds, hoping to replicate their performance and compensation. The model yields several novel empirical predictions that contrast transparent and opaque funds.

Duke Scholars

Author Simon Gervais Fuqua School of Business