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!