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Mutual fund managers are typically compensated by way of Management Fee, which is a percentage of the assets managed by mutual fund manager. Assume that

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Mutual fund managers are typically compensated by way of Management Fee, which is a percentage of the assets managed by mutual fund manager. Assume that the management fee for the fund does not change over the next 4 years. a) (4 marks) Explain the main issue faced by a high quality fund manager who receives large capital inflows in to the fund due to the fund's high performance b) (4 marks) Explain why would a poor quality fund manager receive capital flows in to their fund, even though the fund under performs the benchmark 80% of the time

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