Investors in Georgia and elsewhere who put their money into hedge funds may want to consider the results of a study released recently by economists from a large university. The study reports that when the manager of the investment fund is going through a marriage or a divorce there is an impact on the performance of the fund. Funds are often measured by what percentage they beat the market, which is an indicator called a fund’s alpha.
The researchers looked at 786 managers going through 857 marriages and 251 divorces, over an 18-year period from1994 through 2012. The study showed that older fund managers lost only 4.1 percent on their alpha during a divorce but that younger ones fell by an average of 15.7 percent. Some experienced investors have always observed that a fund manager’s performance goes down when he is going through a divorce.
Surprisingly, however, fund performance is also negatively impacted in certain situations where the manager is getting married. Thus, for older managers who rely on frequent trading, a marriage deteriorated their performance by an average of 14.3 percent. Marriage did not have much of an effect on younger managers. The study was conducted by University of Florida economists.
It is likely that the study is relevant to Georgia residents who invest in such funds. It should be noted, however, that the findings are subject to certain qualifications. Thus, if a manager in a divorce has a team of partners who are co-managing the investing activities, there may be little effect on the fund’s performance. The key appears to be that managers who work alone are far more effected than those who have a team approach. According to the study, the reason for these performance variations seems to have something to do with managers taking on unusual “behavioral biases” during these high-stress events.
Source: money.cnn.com, “Marriage hurts a hedge fund manager more than divorce“, Mark Fahey, Feb. 27, 2015