The results of a research done by an American and an Australian professor suggest that fund managers raised in less wealthy environments perform better and produce higher returns, than those, who had everything provided due to their backgrounds. The study carried out by the on behalf of the National Bureau of Economic Research, Washington, has raised many issues and concerns in the media and the profession. We did this interview with the Australian expert, Oleg Chuprinin.
Péter Zentai: How can one prove who will become a successful portfolio manager based solely on parentage?
Oleg Chuprinin: The study we carried out was based on a broad and representative enough sample of the most well-known American asset managements of the last decades. Those people, whose personal ‘files’ and professional biography are legally accessible and available for research purposes. In other words, we based our conclusions on ‘stories’ of people, who have grown old by now. The youngest of them is 72 years old.
How many personal performances did you analyse?
267, and altogether, they managed almost 500 investment funds. As for their performances, they peaked between 1975 and 2012 at American investment funds, which are active even today, and managed at least ten million dollars capital. This way, we know their achievements quite extensively, so we can compare them to the general efficiency of a given investment fund.
Information about the education and family background of currently active, younger generation of portfolio managers will only become public, legally accessible personal data in decades. Just like the information on how efficient their work is, and whether the conclusions we base on their social background – in the era of technological advancements – are significant or not.
So, does it mean that the relevance of the studies that you based on earlier generations is limited?
We have to admit that, indeed. However, our observations based on recent experiences suggest that the scientifically examined patterns – even though they are from earlier times – are still fundamentally valid. Of course, there is no doubt, we can prove or refute such assumptions scientifically and with retroactive effect only later, in one or three decades.
What supports the conclusion that investment managers raised in poorer environments are better than those we were brought up in wealthy families and went to prestigious universities?
The results are clear: the top five percent of the professionals we included in the study – coming from richer background and a generally well-off environment, produce 2.16 percent less return on an annual average, than those from the bottom five percent; those who could not rely so much on the family.
How do you explain that?
The stronger ambition of talented professionals, who start with disadvantages, seems to be one evident explanation. Obviously, someone who starts from a disadvantaged position has to work harder and prove more to themselves, their parents, colleagues, and especially to people who entrust them with their money. However, we shall take not of a tendency that is observable not only in America, but in the whole world: the private sector – especially, big American fund managements, when they expand their human resources – favours people with degrees from prestigious universities. These universities are extremely expensive, so students going there are probably coming from wealthy families. They will sooner get accepted to positions that contribute to the reputation of the company. We also know that CEOs of big American fund managements attach great importance to social capital. It is a common assumption that employees from wealthy families have better chances to attract more – and preferably richer – clients.
But how could potential clients ever know about the pedigree of an asset manager…
Theoretically, they cannot, but in fact, big asset managements with solid reputation try to inform their clients one way or another, that their money is managed by someone from a ‘good family’. It is a powerful marketing tool. It is not a coincidence our studies suggested, that smaller asset managements performed better than big, prestigious companies with international reputation, which can afford hiring employees from rich families. Smaller managements have to prove that they are as good as the big competitors by achieving exceptional results. It is another question, that after so many successes, small companies will eventually expand and grow bigger, and those professionals, who are originally from poorer families, can get rich thanks to their talent and exceptional performance. How the social and psychological circumstances that we discussed will affect their children, and the asset managers of the present and future in general is a question that only much later studies can answer.
Original date of Hungarian publication: September 28, 2016