Managerial Characteristics and Hedge Fund Performance

Abstract

The tremendous growth in assets managed in hedge funds is well recognized. However, monitoring, valuation and performance assessment is confounded by the paucity and inconsistency of available data. Hedge funds do not regularly report their performance and rarely divulge holdings. Utilizing a unique data set we are able to shed some light on the relationship between performance and various hedge fund manager characteristics. We examine the influence of characteristics such as education and prior work experience on performance by hedge fund style for 147 hedge funds over the 1994-2004 period. Our results indicate that managers with degrees from top US schools outperform their peers unless those degrees are in economics or technical fields. Managers with undergraduate degrees in economics and especially those from top ranked schools significantly underperform their peers and the same result occurs, but less significantly, with technical degrees. Prior work experience does not change these results and they are also robust to the type of strategy employed by the hedge fund and alternative measures of performance including the Stutzer Index and Omega Measure. Thus, our results have interesting implications for the selection of hedge fund managers and particularly for the formation of diversified asset class targeted hedge fund products such as funds of funds.

Keywords: hedge funds, characteristics, performance