Are college education and job experience complements or substitutes? Evidence from hedge fund portfolio performance

We examine, for various educational characteristics of hedge fund managers, the performance profile of hedge fund portfolios along their managers’ professional experience path. We find that during the initial years following their graduation, hedge fund managers who majored in business or economics outperform other managers. However, in subsequent years, hedge fund managers who studied science or engineering improve their performance and eventually outperform all other managers. These results are consistent with the view that business education is a substitute for, while science education is a complement to, job experience in acquiring the skills that help hedge fund managers generate excess returns. Compared with cross section studies of the impact of educational variables on productivity, our performance measures are more likely to represent individual productivity, and our estimates are less likely to be biased because of a correlation between educational variables and time-invariant characteristics, such as ability.