Hedge Fund Family Ties

Abstract

Using a novel dataset, I show that hedge fund managers connected through shared employment histories hold and co-trade more of the same stocks than unconnected managers. Results are greater between fund pairs with stronger social connections and longer dated relationships, implying a socially reinforcing channel is responsible. A long-short portfolio of overlapped socially connected versus unconnected stocks generates alpha of 13.3% per year. Findings herein support models of manager coordination and identifies employment linked hedge funds as a common source of correlated risk and return.

Keywords: Hedge Funds, Social Networks, Investment Decisions, Manager Origin

JEL Classification: G11, G12, G23