Yes, I want my fund manager to be poor

By | 7.9.2016

How difficult is it to find a fund manager to whom you would entrust your money; to assess his quality before it is too late? Apparently, one way is to look at his family background as it has been recently shown to be a decent signal of future performance. In particular, Chuprinin and Sosyura (2016) found that fund managers from poor families outperform those coming from a wealthier background.

To explain this phenomena, the authors argued that wealthy family background makes it easier to move up into a managerial position as the applicants face less barriers. In contrast, for an applicant from a poor family it is heavy going. As a result, to succeed as a manager with a poor family background, one needs to possess top skills. In other words, the selection process causes that while the rich applicants do not need to meet the highest criteria, the poor ones do.

The authors also claimed that it would necessarily mean that there is more dispersion among the fund managers from rich families as not all of them satisfy the highest criteria. On the contrary, performance of the successful applicants from less rich families are likely to be more similar. As a matter of fact, they found higher volatility in the results among the fund managers with wealthier background and thus provided evidence in favor of their arguments. The picture shows the distribution of income of the general male population and that of the managers’ fathers.

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Reference: Chuprinin, O., & Sosyura, D. (2016, May). Family Descent as a Signal of Managerial Quality: Evidence from Mutual Funds. In University of Miami, School of Business Administration, 6th Miami Behavioral Finance Conference. Available here.

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