We analyze the implications of linking the compensation of fund managers to the return of their portfolio relative to that of a benchmark – a common solution to the agency problem in delegated portfolio management. In the presence of such relative-performance-based objectives, investors have reduced expected utility but markets are typically more informative and deeper, provided that information is free. Furthermore, in a multiple asset/market framework, we show that (i) relative performance concerns lead to financial contagion; (ii) benchmark inclusion increases price volatility; and (iii) home bias emerges as a rational outcome. When information is costly, however, information acquisition is hindered and this attenuates the effects on informativeness and depth of the market.