Managerial discretion is meant to reflect the degree to which managers have options to make significant choices. Discretion can have a significant impact on both absolute and relative performance outcomes because these managers have additional powers or time to make decisions relative to their peers.
The terms that give one manager more discretion than another usually relate to the lockup period, redemption period, and notice period.
The lockup period refers to the number of days reported to the database that an initial investment in the fund must remain in the fund before an investor is eligible to redeem his investment. The lockup period is set once when the fund is launched and does not change over the life of a fund.
The redemption period refers to the frequency with which an investor in a fund is allowed to redeem an investment after the initial lockup period, if any. The redemption term is reported to the database as either monthly, quarterly, semiannually, annually, or greater than annually. The redemption period is set once when the fund is launched and does not change over the life of a fund.
The notice period refers to the number of days prior to the next upcoming redemption date that an investor must notify a fund of an intention to redeem. The notice period is set once when the fund is launched and does not change over the life of a fund.
Ample studies have been published of discretion and performance, based on either the ...