Family Descent as a Signal of Managerial Quality: Evidence from Mutual Funds
53 Pages Posted: 22 Aug 2016 Last revised: 12 Jul 2023
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Family Descent as a Signal of Managerial Quality: Evidence from Mutual Funds
Date Written: August 2016
Abstract
We study the relation between mutual fund managers’ family backgrounds and their professional performance. Using hand-collected data from individual Census records on the wealth and income of managers’ parents, we find that managers from poor families deliver higher alphas than managers from rich families. This result is robust to alternative measures of fund performance, such as benchmark-adjusted return and value extracted from capital markets. We argue that managers born poor face higher entry barriers into asset management, and only the most skilled succeed. Consistent with this view, managers born rich are more likely to be promoted, while those born poor are promoted only if they outperform. Overall, we establish the first link between family descent of investment professionals and their ability to create value.
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