N°16-10: Birds of a Feather—Do Hedge Fund Managers Flock Together?

Mandatory filings for UK hedge funds allow analysis of the effect of managerial employment networks on investment behavior. Employment in the same firm leads to significantly more similar investment behavior in terms of raw returns, abnormal performance (alpha), systematic risk (beta), and residual returns. Employment at the same firm at the same time strengthens the results significantly. The joint effect accounts for about a fifth of the difference in investing behavior. Results are robust to fund and manager level controls, as well as to endogeneity concerns.