This article focuses on the importance of the traditional theories for the existence of the discount in relation to agency costs namely management performance. The argument that discounts reflect the quality of the management has been investigated in the past but the results were inconclusive. However, in these studies managerial performance is defined as the raw return on the fund's NAV ((Grinlatt and Titman (1992), Elton, Gruber, Das and Hlavka (1993), and Elton, Gruber, and Blake (1996a)), whereas I measure the manager's quality after adjusting for various anomalies documented in the Finance literature. Three methodologies will be applied. Fama and French (1993), three factor model, Ferson and Schadt (1996), conditional performance model and finally Carhart (1997), performance persistence theory. The results contradict Gruber's (1996) evidence of managerial performance persistence in the US mutual fund industry. We find no performance persistence in the UK closed-end fund market. We take into account the fact that closed-end fund managers trade on public information and follow dynamic trading strategies. So we will test if conditioning information predicts changes in discounts performance than constant expected returns. The problem of measuring the performance of managed portfolios has been the subject of research for more than 30 years. Traditional measures use unconditional expected returns, estimated by sample averages, as the baseline. However, if expected returns and risks vary over time, this may confuse common time-variation in fund risk and market risk premiums with average performance. In this way, traditional methods can ascribe abnormal performance to an investment strategy that trades mechanically, based only on public information.Conditional performance evaluation attempts to control these biases, while delivering potentially more powerful performance measures. In this article, I will review the main models for performance evaluation, and includes a summary of the empirical research
