Investing in Talents: Manager Characteristics and Hedge Fund Performances

If this new academic paper is true, I should be managing billions and shooting the lights out! (Although if wheat continues its trajectory towards the moon, I may just have to move this operation to our farm in Kansas.)


Using a large sample of hedge fund manager characteristics, we provide one of the first comprehensive studies on the impact of manager characteristics, such as education and career concern, on hedge fund performances. We document differential ability among hedge fund managers in generating risk-adjusted returns and flow-chasing-return behaviors among hedge fund investors. In particular, we find that managers from higher-SAT undergraduate institutes tend to have higher raw and risk-adjusted returns, more inflows, and take less risks. We also find that younger managers tend to have higher returns, more inflows, and take more risks. Our results provide supporting evidence to some of the assumptions and implications of the rational theory of active portfolio management of Berk and Green (2004). However, in contrast to the results for mutual funds, we find a rather symmetric relation between hedge fund flows and past performance, and that hedge fund flows do not have a significant negative impact on future performance.