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Fund managers are rewarded for growing assets under management rather than generating investment returns, new research finds.

In a working paper published by the U.S. National Bureau of Economic Research (NBER), a quartet of academics — Winston Wei Dou (Wharton), Leonid Kogan (MIT Sloan), and Xiao Cen and Wei Wu (Texas A&M University) — analyzed the compensation and employment histories of active, U.S.-equity fund managers to study the relationship between career outcomes and fund performance.

According to the paper, that data shows managers’ compensation was primarily tied to their funds’ assets under management. Specifically, the researchers found a one-standard-deviation increase in fund flows was associated with an estimated six-percentage-point rise in compensation.

They also found managers’ compensation was connected to flows into their fund family, not just their own funds.

According to the paper, investment performance (both absolute and relative returns) primarily impacted fund managers’ compensation through its effect on AUM.

“We find that, contrary to their self-disclosures, funds’ AUMs are the primary driver of their managers’ compensation, with both fund flows and performance influencing compensation via AUM,” the paper said. “These findings cast doubt on the credibility and clarity of the compensation structures disclosed in [funds’ regulatory filings].”

The researchers suggest this is probably due to fund companies’ public relations concerns.

“One likely factor driving this discrepancy is the strategic marketing considerations of fund companies,” the paper said. “It’s plausible that funds would be highly motivated to portray their managers’ incentives as perfectly aligned with the performance outcomes that potential investors seek.”

As a result, the researchers concluded, “investors should interpret the wording in the disclosures with a grain of salt,” noting that investors should equate “performance” with AUM growth, rather than investment returns.

Finally, the researchers also documented links between managers’ results and job changes.

“In scenarios where managers transition to new positions, their compensation in these new roles is positively influenced by previous fund flows, though not by their performance preceding the job change,” the paper noted.

The researchers also found that fund flows strongly influence fund managers’ downside career risk.

Specifically, “large fund outflows elevate a manager’s likelihood of job turnover (with a substantial decline in income) by four percentage points.”

The analysis used data from the Center for Research in Security Prices (CRSP), Chicago-based Morningstar Inc. and the U.S. census.