How Much Labor Do You Need to Manage Capital?

59 Pages Posted: 11 Jan 2017 Last revised: 13 Feb 2018

See all articles by Leonard Kostovetsky

Leonard Kostovetsky

Zicklin School of Business, Baruch College

Alberto Manconi

Bocconi University - Department of Finance; Centre for Economic Policy Research (CEPR)

Date Written: January 2018

Abstract

Using a new dataset on employment at SEC-registered investment advisors, we analyze which clienteles, asset classes, and strategies require more human capital, as well as the value of human capital to investment managers. Controlling for assets, quantity of human capital is not associated with better returns. However, employing more advisory personnel is associated with more future assets under management, justifying the employees’ costs from the firm’s point of view. More human capital-intensive firms also manage portfolios that exhibit the hallmarks of closet indexing such as lower active share and lower tracking error of benchmarks. Our results are consistent with the hypothesis that marketing and client services are the main responsibility and means of adding value for most investment professionals in the asset management industry.

Keywords: RIAs, Asset Management, Fund Flows

JEL Classification: G12, G20, G23

Suggested Citation

Kostovetsky, Leonard and Manconi, Alberto, How Much Labor Do You Need to Manage Capital? (January 2018). Available at SSRN: https://ssrn.com/abstract=2896355 or http://dx.doi.org/10.2139/ssrn.2896355

Leonard Kostovetsky (Contact Author)

Zicklin School of Business, Baruch College ( email )

One Bernard Baruch Way
New York, NY 10010
United States

Alberto Manconi

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://mypage.unibocconi.eu/albertomanconi/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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