Do Fund Managers Capture All the Returns from Their Skills? A Study of Actively Managed Mutual Funds

Abstract

Current research on human capital shows that increases in the firm- specificity of human capital skills shifts bargaining power to firms in the wage negotiation process. Empirical patterns in the actively managed mutual fund industry seem to run counter to this prediction in that the fund managers appear to appropriate much of the surplus that they create. In an attempt to reconcile theory with fact, we decompose the skills of mutual fund managers and test hypotheses about the returns to general and firm-specific skills respectively. Consistent with extant theory, we find that fund managers with general skills appropriate a greater share of the surplus. In contrast, increases in firm-specific skills have no statistically significant impact on surplus appropriation. We discuss the implications of our results for the literature on human capital value creation and appropriation.