The GUTMANN CENTER FOR PORTFOLIO MANAGEMENT at the University of Vienna http://www.gutmann-center.at is pleased to announce the following PUBLIC LECTURE: - Apologies for any cross-listings!! - Date: April 13th, 2005 - 5.00 p.m. Speaker: Prof. Dr. Suleyman BASAK London Business School http://faculty.london.edu/sbasak/ Title: "IMPLICIT INCENTIVES AND BENCHMARKING IN MONEY MANAGEMENT" Abstract: Money managers are rewarded for increasing the value of assets under management, and predominantly so in the mutual fund industry. This gives the manager an implicit incentive to exploit the well-documented positive fund-flows to relative-performance relationship by manipulating her risk exposure. In a dynamic asset allocation framework, this presentation will argue that as the year-end approaches, the ensuing convexities in the manager's objective induce her to closely mimic the index, relative to which her performance is evaluated, when the fund's year-to-date return is sufficiently high. As her relative performance falls behind, she chooses to deviate from the index by either increasing or decreasing the volatility of her portfolio. The maximum deviation is achieved at a critical level of underperformance. It may be optimal for the manager to reach such deviation via selling the risky asset despite its positive risk premium. Costs of misaligned incentives to investors resulting from the manager's policy are economically significant. The presentation then will demonstrate how a simple risk management practice that accounts for benchmarking can ameliorate the adverse effects of managerial incentives. Location: Bank Gutmann AG (http://www.gutmann.at), Schwarzenbergplatz 16, A - 1010 Vienna, Austria Please REGISTER: brigitte.juchelka(a)gutmann.at phone: +43-1-50220-357 Further information about the Gutmann Center: Gutmann Center for Portfolio Management University of Vienna Bruenner Str. 72 A-1210 Wien Austria phone: +43-1-4277-38186 fax: +43-1-4277-38074 mail: gutmann.bwl(a)univie.ac.at web: www.gutmann-center.at