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Most of the investments made by private investors is delegated to the fund management industry. This delegation implies asymmetry of information between the investors and the management of the funds. This is a theoretical issue discussed in a somewhat older Working Paper by the ECB (Stracca (2005)). This delegation issue is not much taken into account in most of the portfolio theory literature, which leads to some disconnection between portfolio theory and the practice in the asset management industry.
A typical Mutual Fund consists of shareholders and a board of directors. In principle, the board of directors is supposed to protect the shareholders interest when the fund is contracting with service providers. One of the tasks is to monitor the Investment Advisor and...
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