title: Risk-adjusted impact of administrative costs on the distribution of terminal wealth for long-term investment.
abstract: The impact of administrative costs on the distribution of terminal wealth is approximated using a simple formula applicable to many investment situations. We show that the reduction in median returns attributable to administrative fees is usually at least twice the amount of the administrative costs charged for most investment funds, when considering a risk-adjustment correction over a reasonably long-term time horizon. The example we present covers a number of standard cases and can be applied to passive investments, mutual funds, and hedge funds. Our results show investors the potential losses they face in performance due to administrative costs.
authors.affiliation: Department of Econometrics, Riskcenter-IREA, University of Barcelona, Diagonal 690, 08034 Barcelona, Spain.
authors.forename: Montserrat
authors.initials: M
authors.lastname: Guillén
authors.affiliation: ATP Pension Fund, Kongens Vaenge 8, 3400 Hilleroed, Denmark.
authors.forename: Søren Fiig
authors.initials: SF
authors.lastname: Jarner
authors.affiliation: Cass Business School, City University London, 106 Bunhill Row, London EC1Y 8TZ, UK.
authors.forename: Jens Perch
authors.identifier: 0000-0002-2798-0817
authors.initials: JP
authors.lastname: Nielsen
authors.affiliation: Department of Econometrics, Riskcenter-IREA, University of Barcelona, Diagonal 690, 08034 Barcelona, Spain.
authors.forename: Ana M
authors.initials: AM
authors.lastname: Pérez-Marín
mesh_terms: D003362:Cost-Benefit Analysis; D007449:Investments / Q000191:economics* / Q000458:organization & administration; D018803:Models, Economic; D012307:Risk Factors; D013997:Time Factors