Incentives Schemes Under New Regulations

Abstract

Due to the nancial crisis of 2007, regulatory authorities engaged in a fundamental reconsideration of how they approach nancial regulation and supervision. Therefore, that nancial crisis caused the need of a signi cant change of the regulations of remuneration in the nancial sector in the EU. It is worth to notice that the EU led the way internationally as the EU' s approach has exerted externally. The European Securities and Markets Authority published guidelines on the managers' remuneration policies of investment funds. The guidelines introduced new standards for investment managers. In this thesis, we study the managerial behaviour due to changes to incentive schemes. We consider a manager who is o ered an awarded fee by the investor based on a speci c model, which we will subsequently analyse. Moreover, the manager withholds a percentage of the earned bonuses in an account for some time period. We study how the management fee ranges accordingly to how small or big is the amount which is saved in the account. Finally, we observe that the existence of the account evolves more risk taking but it gives higher total fees.