The agency problem in portfolio management delegation: a survey

This paper surveys the literature on the agency problem in portfolio management delegation. The fact that there is no optimal contract in this case is well-documented. More recent papers have shown that this problem can be solved by adding to the contract some management constraints. However some empirical studies about implicit incentives demonstrate the convexity of the manager's compensation, due to an asymmetric flow-performance relationship. Finally, we review empirical work about two important consequences of this agency problem: herding and excessive risk taking.