We consider the problem of how to establish compensation for a portfolio man- who is required to restrict the investment set, for example, because of socially screening. This is a problem of Delegated Portfolio Management where reduction of investment opportunities to the subset of sustainable assets involves loss in expected earnings for the portfolio manager, compensated by the investor an extra bonus on the realized return. Under simple assumptions on the , manager and market, we compute the optimal bonus as a function of the risk aversion and expertise, and of the impact of portfolio restriction on mean-variance e cient frontier.
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Fabretti et al. (2011) studied this question.
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