The Performance of Long-Serving Fund Managers

Abstract

Apparently “there is no substitute for experience”. This and similar phrases are often heard in the worlds of politics, business, sport and others. It is the sort of proposition that makes sense to people. However, while the performance of actively managed funds has attracted a great deal of attention in the past, the performance of managers with long track records has attracted relatively little. In this paper we focus on managers with track records of at least ten years, that is, managers that have been the sole manager of a fund for at least a decade. We find that the average, net of fee, risk-adjusted performance of these managers over the ten years of our sample is attractive compared to similar values calculated for wider samples of the manager population. However, this result may be a reflection of survivorship bias, since we find little evidence of performance persistence from year to year among these managers, and evidence to suggest that risk-adjusted performance over the ten year sample period declined. However, for those investors that would still prefer to invest with an experienced fund manager, the disaggregated analysis in this paper reveals certain key traits that are related to positive risk-adjusted performance of long-serving managers, such as relatively low fund fees, more concentrated portfolios and a small cap style bias.