Are College Education and Job Experience Complements or Substitutes? Evidence from Hedge Fund Portfolio Performance

Abstract

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. Consistent with Chevalier and Ellison’s (1999b) findings for mutual fund managers, we find a positive and significant relation between the academic ability of hedge fund managers (as measured by the average SAT scores of the students in the school that the managers attended) and their fund performance. However, a significant positive relation does not exist between fund performance and other school characteristics such as tuition, school ranking, and student-faculty ratio.