Research: Fund managers fail to improve with experience


Managers with a long track record on a single fund show a “gradual deterioration” in performance over time rather than improving with experience, research from Cass Business School shows.

The paper, The performance of long-serving fund managers, focussed on equity managers based in the US with a track record of at least 10 years on a single fund.

While fund managers analysed showed a strong level of performance overall, which the research concludes was likely due to survivor bias, fund manager performance did not improve with experience.

“There’s a gradual deterioration in their performance over the 10-year period,” author Professor Andrew Clare says of the findings, suggesting “experience is worth less and less as time goes on”.

“If fund selectors have a bias towards someone who has been around for a while, this might cause them to question that bias,” says Clare.

The research is among the minority of academic studies that focus on manager rather than fund performance.

Clare says declining risk appetite or luck early in a fund manager’s career could be reasons behind the findings.

“It’s almost as if the manager had two or three good years of experience and then their performance trended back to the average,” says Clare.

“Then essentially they’ve stayed in their post because they develop a reputation inside and outside the firm, which makes it more likely that they’re going to stay on.”

Clare says the research shows it is important to focus on factors beyond manager reputation when it comes to selecting a fund. “It would be worth looking at the year-by-year performance of these people.”

Fund managers that had low fee funds, a bias towards small caps, and concentrated portfolios were the most likely among the data set to perform well.

When asked if the results would be similar in the UK, Clare said: “It’s a fairly similar industry, they’re facing very similar problems.”

Research that replicates studies between the US, UK and Europe fund management industries usually produce similar results, he adds.