This article analyzes optimal nonlinear portfolio management contracts. We consider a setting in which the investor faces moral hazard with respect to the effort and risk choices of the portfolio manager. The employment contract promises the manager: (i) a fixed payment, (ii) a proportional...

This study explores optimal portfolio management contracts in the context of ‘opaque' portfolios invested in illiquid or privately held assets. We identify shortcomings of linear contracts in this context and demonstrate that the second-best optimal contract features a convex component. The...