Inherited Agglomeration Effects in Hedge Funds
46 Pages Posted: 16 Feb 2010 Last revised: 1 Oct 2012
Date Written: October 25, 2011
This paper studies inherited agglomeration effects, how human capital that accrues to managers while working at a parent firm in an industry hub can be subsequently transferred to a spinoff. We test for inherited agglomeration effects in the context of the hedge fund industry and find that hedge fund managers who previously worked in New York and London outperform their peers who worked elsewhere previously by 10-14 basis points per month or about 1.5% per year. The results are driven by managers who worked in investment management positions previously, and are at least as large as traditional agglomeration effects that arise from being located in an industry hub contemporaneously. The evidence suggests that inherited agglomeration effects are an important, but as yet overlooked, factor influencing the performance of new firms.
Keywords: Agglomeration, entrepreneurial spawning
JEL Classification: M13
Suggested Citation: Suggested Citation