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Fund managers who grew up poor get better returns

An illustrated scene from Oliver Twist by Charles Dickens, 1871. The Print Collector/Getty Images

Fund managers from poor families deliver higher returns than those who grew up in wealthy households, according to the latest research.

Oleg Chuprinin from the University of New South Wales and Denis Sosyura from the University of Michigan studied the relationship between family backgrounds and professional lives.

“Managers born poor face higher entry barriers into asset management, and only the most skilled succeed,” the researchers write in a paper for the National Bureau of Economic Research.

“Consistent with this view, managers born rich are more likely to be promoted, while those born poor are promoted only if they outperform.”

The study reveals the first link between family descent and the ability of investment professionals to create value.

The researchers found that most fund managers tend to come from wealthier and more educated families. But those fund managers deliver significantly weaker performance than managers coming from less wealthy backgrounds.

The difference can mean as much as 2.16% per year in fund returns.

“Our evidence suggests that managers endowed with a low economic status at birth face higher entry barriers into asset management, and only the highest-quality candidates succeed in entering the profession,” the researchers write.

“This explanation is supported by the evidence on managers’ promotions, which shows that managers with a low endowed status must deliver higher returns to stand a comparable chance of
promotion with their high-status peers.”

The researchers believe the findings have implications that extend beyond asset management.

The evidence suggests that social status at birth may serve as an important signal of quality in other industries with high barriers to entry, such as corporate management or professional services.

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