Some Large Fund Firms Don't Require Managers to Have Personal Stake

Although some of the biggest fund families including Fidelity, Vanguard and American Funds, don’t require their fund managers to have their own money invested in the funds they run, many other  fund companies are now requiring their managers to do so, according to the Dow Jones News Service.

Studies have shown that funds whose managers have a personal financial stake tend to have better performance over funds whose managers aren’t invested.

“I do think that there’s been more focus on getting fund managers invested in the funds they oversee and using bonus compensation to help with that effort,” said Laura Pavlenko Lutton, senior mutual fund analyst at Chicago investment-research firm Morningstar.

Even if it’s not required, Lutton said she can't think of a single fund company where managers have no investment at all in their own funds.

Jay Keeshan, a director at Management Practice, said about 46% of mutual fund boards now mandate or strongly recommend ownership in the funds they govern.

Royce & Associates, for example, requires its lead managers to personally invest at least $1 million in the funds they manage. If they haven't built up their wealth yet, Royce will defer the managers’ bonuses into shares of the funds, said Jack Fockler, managing director at Royce.

“We think it's important that our interests be aligned with the shareholders’ interests,” he said. “If they do well, we’ll do well; if they don’t, we’ll suffer the same consequences.”