The Genesis of Home Bias? The Location and Portfolio Choices of Investment Company Start-Ups

Abstract

Fund managers' bias towards geographically proximate securities is a well-researched phenomenon, yet the origins of their location choices have received little empirical scrutiny. This paper traces the employment and geographic heritage of 358 entrepreneurial fund managers and analyzes the determinants of where they locate their firms and stock selections. The evidence suggests start-ups tend to be based close to the origins of their founders, and in regions with more investment management firms, banking establishments, and large institutional money managers. New money managers show a strong local bias in their equity holdings, three times the levels previously documented for mutual funds. The propensity to invest closer home correlates strongly with the presence of sub-advisory opportunities from institutional investors in the vicinity. While home bias levels between managers who relocate with their start-ups and the rest of the entrepreneurs are similar, preferences for stocks that were formally local persist.