We develop a model in wich investors can invest directly in the market at no cost or delegate their portfolio decisions to better informed active fund managers against fees. We derive the maximal fee an investor should pay and characterize it in terms of information differential or, equivalently, alpha. For example, the fee should be less than 6,60% if alpha is 6,83% over two years, and less than 51,9% if it is 73,3% over 5 years. Ours simulation results are consistent with the empirical evidence we report on a large subset of active US mutual funds.
PONCET, P. and EZZILI, C. (2014). What Maximum Fees Should Investors Pay to Active Fund Managers. Bankers, Markets and Investors, (131), pp. 5-16.