Academic Contribution - Hedge Fund Research

"...there is still much we do not know about how managers’ prior employment experience influences the performance of entrepreneurial spawns."

We are grateful to Philip Meyer-Doyle to reach out to us to gather our views on the hedge fund industry and its practioners. Specifically, we were able to contribute to the paper “Inherited Agglomeration Effects in Hedge Fund Spawns”, jointly published by University of California Berkerley and The Wharton School, University of Pennsylvania.


From the abstract:

This paper studies inherited agglomeration effects, which we define as human capital that managers acquire while working in an industry hub that may be transferred to a spinoff. We test for inherited agglomeration effects in the hedge fund industry and find that hedge fund managers who previously worked in New York and London outperform their peers by about one percent per year. The results are driven by managers who worked in investment management positions previously, and are at least as large as traditional agglomeration effects that arise from being located in an industry hub contemporaneously. The evidence suggests that inherited agglomeration effects are an important, but as yet overlooked, factor influencing the performance of new firms.

Academic Contribution - Hedge Funds

"Networks feature prominently in the Hedge Fund industry. Recent ethnographic evidence suggests that a Hedge Fund is seldom an entity that confronts a market ‘on its own’"

We are grateful to Charles Baden-Fuller, Professor at Cass Business School to allow us to contribute to his research entitled “The Dark Side of Alternative Asset Markets: Networks, Performance and Risk Taking” which he jointly published with V.J. Torlo and S Ferriani.

From the abstract:

When actors invest in making strong network ties (relationships) with other actors, such ties can potentially influence behavior and subsequent financial performance, but the strength and direction of these effects is debated. Using original fine-grained data that documents the nature and extent of the relationships between Hedge Funds through their Prime Brokers (banks that provide leverage, issue credit lines and serve as bridges between Hedge Funds) we probe the social topology of Hedge Fund to Hedge Fund relationships that shapes this global alternative asset market. Contrasting much recent research that tends to stress the positive effects of network relationships, we find that investing in network relationships in this industry appears to have a “dark side” in terms of both performance and risk taking; where we probe various measures of both performance and risk in line with recent finance literature. We explore the reasons for these effects, and conclude that investing in Hedge Fund to Hedge Fund network ties can lead to inferior performance and increased risks that may not benefit the investor.