No 2010/7: Delegated Portfolio Management with Socially Responsible Investment Constraints

Abstract: We consider the problem of how to set a compensation for a portfolio manager who is required to restrict the investment set, as it happens when applying socially responsible screening. This is a problem of Delegated Portfolio Management where the reduction of the investment opportunities to the subset of sustainable assets involves a loss in the expected earnings for the portfolio manager, compensated by the investor through an extra bonus on the realized return. Under simple assumptions on the investor, the manager and the market, we compute the optimal bonus as a function of the manager's risk aversion and his expertise, and of the impact of the portfolio restriction on the Mean Variance efficient frontier. We conclude by discussing the problem of selecting the best managers when his ability is not directly observable by the investor.

Keywords: Delegated portfolio management; Socially responsible investment; Incentives; Extrinsic incentives; Intrinsic motives

22 pages, June 10, 2010

Full text files

sirpwp10-07-FabrettiHerzel.pdf?attredirects=0&d=1  

Download statistics

• Sustainable Investment Research Platform
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Pontus Cerin ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhb:sicgwp:2010_007This page generated on 2024-09-13 22:18:34.