For richer or poorer

Yesterday it was all about the car that your investment manager drives, today it is who their parents were:

Research by Dr Oleg Chuprinin, from the University of NSW, and Denis Sosyura, from the University of Michigan, shows that investment managers who grew up in poor families made two percentage points higher returns each year, on average, than their counterparts from the wealthier families.

Man, I’m two for two. A minivan AND school teacher/nurse parents. Tomorrow I’m hoping for an article confirming that follicly-challenged fund managers also outperform and then our sales pitch will be complete…

Those from humble origins were also more active in their jobs and more likely to deviate from the market norm. Managers that grew up in wealthy households, however, tended to be more conformist and follow benchmark indexes.

The researchers made these discoveries after painstakingly compiling the family histories of hundreds of people managing American equity funds between 1975 and 2012 using a range of data sources. They subsequently tracked their professional investment performance.

The returns made by managers from poor families were tightly bunched, a sign they had passed through rigorous quality filters. It was a different story for those from wealthy, well-connected families. That cohort had a much higher dispersion of investment returns – some did very well, while others performed poorly. That’s a tell-tale sign they were subject to a weaker filter mechanism. It also implies some managers from wealthy backgrounds didn’t really deserve to be there.

The connections between family background and performance in the funds management industry are stark because the indicator of performance – an individual’s investment returns – is so tangible.

It doesn’t get much different than MB – you won’t find silver spoons here!

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  1. Parents were school teacher and nurse eh? I’ll assume that they are those same humble folk who, according to the government, negative geared multiple properties and the MB fund will use these strategies as a guaranteed way to get ahead!

  2. My conclusion from the article is merely that if the filters worked properly and you remove those that got a leg up the performance of those from wealthy families remaining in the pool is stellar.

    • My conclusion is for all the equality and political correctedness that gets thrown around, neoptism is alive and doing better than ever.

      • Yep, have a look at the 2 who were done for insider trading recently. One already has his life back on track via family connections as the other will do when his time is up.

    • Stewie GriffinMEMBER

      An often suggested requirement, however the suitability of a person for a particular role is dependent on their personality type and their personal preferences.

      Protectors (SJ)
      Population Male Female
      ESTJ – Overseer 13% 16% 10%
      ESFJ – Supporter 12% 7% 17%
      ISTJ – Examiner 8.5% 10.5% 6.5%
      ISFJ – Defender 7% 4% 10%
      All SJs 40.5% 37.5% 43.5%

      Intellectuals (NT)
      Population Male Female
      ENTJ – Chief 4% 5.5% 2.5%
      ENTP – Originator 4.5% 6% 3%
      INTJ – Strategist 1.5% 2.5% 0.5%
      INTP – Engineer 2.5% 4% 1%
      All NTs 12.5% 18% 7%

      Creators (SP)
      Population Male Female
      ESTP – Persuader 10% 12.5% 7.5%
      ESFP – Entertainer 11% 8% 14%
      ISTP – Craftsman 6% 8.5% 3.5%
      ISFP – Artist 6% 5% 7%
      All SPs 33% 34% 32%

      Visionaries (NF)
      Population Male Female
      ENFJ – Mentor 4% 2.5% 5.5%
      ENFP – Advocate 7% 6% 8%
      INFJ – Confidant 1% 0.5% 1.5%
      INFP – Dreamer 2% 1.5% 2.5%
      All NFs 14% 10.5% 17.5%

      While a crude tool, Myers-Briggs does indicate that a large percentage of the female population have personalities that would generally leave them un-interested in a lot of the tedious spreadsheet work and analysis that sits behind fund management (just as there are many men who would rather physically build things, than ever touch a spreadsheet)

      Factor in the increased level of assortive mating within society, then if you’re an intelligent woman who is married to an intelligent man, who has access to suitable income to comfortably support you and your children, then a large percentage of qualified women may not be interested in the employment within the tedious financial market place.

      Of course, none of this is to say that women who want to pursue a career in finance or funds management, should experience any barriers to enter the industry if they want to. I’m just pointing it out that the pool of women capable or interested in doing the role, may be smaller than thought and that achieving a 50/50 gender ratio of equally qualified employees may be impossible.

      • Another reading could be that if we purged the incompetent men from the role and allowed competent ladies to come through then, even if not 50-50, we may have something closer to a meritocracy.

      • Stewie GriffinMEMBER

        Don’t get me wrong SoMPLSBoy, I agree with you whole heartedly – women can make excellent financial managers… but I wonder if the reason they do is the same as why managers from a poorer are often out performers.

        There are plenty of incompetent men who should be purged, but at the same time it is often very hard to find a competent women who are interest in the role. Many times while recruiting we’ve held open the role and requested further applications as we’ve had very little interest from appropriately skilled women, and like many organisations there is a big focus on increasing the gender ratio.

        If you’re a suitably qualified female, who is interested in a role the worlds your oyster nowadays. Very different story to 10 or 15 years ago.

  3. reusachtigeMEMBER

    It’s good to see that some poor people aren’t bludgers sucking off the social welfare tit! Studies also show that the best property investors come from ugly families because they understand the value of becoming good looking!

  4. The fund managers were born in the mid 1940s, matched by US Census data to family income, the authors then examined the performance of hundreds of actively managed mutual funds focused on U.S. equities between the years 1975 and 2012.

    ‘Managers from families in the top quintile of wealth underperformed managers in the bottom quintile by over one percent per year on a risk-adjusted basis.’

    In addition to being better skilled (possibly), drive/ambition an important factor, as it always is.

    Does the report quantify numbers of managers in each quintile and overall performance, a better evaluation if the headline result involves comparatively few individuals.

  5. armchair economist

    The fastest way a pauper and get rich quick is to find some numbskulls who can be duped that the pauper is a magician and can pull returns out of a hat and then charge 2&20 You should all take reusa’s advice and become property investors…dont fight the FED or in australia’s case…dont fight the RBA , NG, CGT…..Stick to the tried & true…either take positions in lowest possible fees in an ETF with S&P500, Asx 200…you can flavour it with sectoral rotation…..or if you’re itching to lever up ++++ then go property…no bank will complain!
    There is no crystal ball…you just have to buy what others want to buy before they actually buy it…you should be able to either increase margins or increase volumes….or best of all both…thats it!!!