How Does a Portfolio Manager Balance the Relationship Between Money Management and Investment?

Abstract

A portfolio manager can obtain profits from charging management fees to individual investors for helping them to invest. Moreover, as an insider, the portfolio manager can obtain proportional brokerage charges on the return on investment by investing the individual investors’ money that he manages. How does the manager balance money management and investment to maximize his total profits? This is the problem that we study in this article. We model the relationship between money management fees and the amount invested. In addition, we investigate how to determine money management fees and the amount of investment needed to maximize the manager’s total profits, including from management fees and brokerage charges.