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On the Role of Human Capital in Investment Management

45 Pages Posted: 11 Jan 2017  

Leonard Kostovetsky

Carroll School of Management, Boston College

Alberto Manconi

Bocconi University - Department of Finance

Date Written: November 15, 2016

Abstract

Asset management companies in the United States employ several hundred thousand people in advisory, portfolio management, and research roles, yet academic research suggests their investments, on average, underperform passive benchmarks net of fees. Using a new dataset on over 10,000 registered investment advisors (RIAs), we analyze which clienteles, asset classes, and strategies require more human capital, as well as the value that human capital adds to investment management. We find that while more human capital is not associated with better performance (controlling for assets under management), having more advisory personnel helps attract more assets, justifying their salaries from the point of view of the firm. Furthermore, larger teams actually behave more like closet-indexers, holding more diversified portfolios with lower tracking error. Our findings suggest that some active management companies realize their ability, or lack thereof, to generate alpha, and use their employees in order to keep and attract clients.

Keywords: RIAs, Asset Management, Fund Flows

JEL Classification: G12, G20, G23

Suggested Citation

Kostovetsky, Leonard and Manconi, Alberto, On the Role of Human Capital in Investment Management (November 15, 2016). Available at SSRN: https://ssrn.com/abstract=2896355

Leonard Kostovetsky (Contact Author)

Carroll School of Management, Boston College ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Alberto Manconi

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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

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