The term Incentive Fee is used to describe a fee that incurs to an investor when his/her fund manager is able to establish returns, above a suggested benchmark initially established. Incentive Fees are set to encourage fund managers to strive for higher returns. While higher returns may be one positive aspect incurring from the Incentive Fee, the fee also encourages rather risky investments. The issue here is that often the fund managers are not held responsible for the losses, only for the gains. This may therefore lead to investments which aren’t fully in line with the investors best interests.
- Performance Fee