You might want to consider firing your money manager in favor of a woman or someone from a less wealthy background.
Two recent studies highlight that mutual fund managers from less affluent backgrounds and seasoned hedge funds with female managers both outperform.
Maybe the movie "Trading Places," in which a homeless man ran rings around affluent financial executives, wasn’t so far fetched after all.
The argument here isn’t that women or those with less family money enjoy some inherent advantage as money managers, but that in order to break in and build a career they must be made of finer stuff.
A study of U.S. mutual fund managers released in February hand-collected census data on the households in which managers grew up in order to measure how family background relates to performance.
As you might expect, fund managers, as a group, come from wealth. Their fathers’ incomes are in the 90th percentile, they grew up in houses worth double the local median and were more likely to go to private schools and expensive universities, according to the study.
All of those advantages are some of the reasons they were well positioned to get to work in a highly paid and competitive industry like fund management. But while their families' investment in them has paid off, how are their clients doing?
Not quite so well, it seems. Fund managers from families in the top 20 percent of parents’ income underperform those from the bottom 20 percent by 1.54 percentage points annually by a standard measure of risk-adjusted return, the study found.
“We argue that managers born poor face higher entry barriers into asset management, and only the most skilled succeed. Consistent with this view, managers born rich are more likely to be promoted, while those born poor are promoted only if they outperform,” Oleg Chuprinin of University of New South Wales and Denis Sosyura of University of Michigan write in the study.
Those from wealthier backgrounds have an easier time getting additional funds or being transferred to work at larger funds but those from poor backgrounds have to outperform to get the same rewards. “A manager from the 25th percentile of parents' income has to outperform a manager from the 75th percentile by about 0.74 percent per year to stand an equal chance of promotion,” according to the study.