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Birds of a Feather: Do Hedge Fund Managers Flock Together?

Author

Listed:
  • Marc Gerritzen

    (Alterneo Capital, 20457 Hamburg, Germany)

  • Jens Jackwerth

    (University of Konstanz, 78457 Konstanz, Germany)

  • Alberto Plazzi

    (Institute of Finance, Università della Svizzera italiana and Swiss Finance Institute, 6900 Lugano, Switzerland)

Abstract

Mandatory filings for UK hedge funds suggest that managers having worked at the same prior employer invest more similarly in terms of distances of returns. If they overlapped in employment, increasing the chance of social ties, investments become even more similar. The joint effect accounts for up to two thirds of the difference in investing behavior. Results are robust to fund- and manager-level controls as well as to identification concerns. With controls, the same-employer effect is concentrated in the systematic component (beta), whereas the overlap effect is concentrated in the idiosyncratic components (alpha and residuals). Managerial ties make any two funds more similar in their stock holdings. Moreover, portfolios of connected funds outperform their peers in terms of alpha, return volatility, and Sharpe ratio.

Suggested Citation

  • Marc Gerritzen & Jens Jackwerth & Alberto Plazzi, 2024. "Birds of a Feather: Do Hedge Fund Managers Flock Together?," Management Science, INFORMS, vol. 70(5), pages 2976-2998, May.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:5:p:2976-2998
    DOI: 10.1287/mnsc.2023.4843
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    2. Spilker, Harold D., 2022. "Hedge fund family ties," Journal of Banking & Finance, Elsevier, vol. 134(C).

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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