Wall Street is no place to be a hopeless romantic.
A group of professors studied hedge fund managers’ performance during various marital events. And they found that returns slipped more than 7% during a divorce. They did even worse around the time they got married.
Yan Lu, Sugata Ray, and Melvyn Teo authored a paper after reviewing fund performance around the time of hundreds of marriages, divorces and, sometimes, re-marriages for 786 managers.
It quotes Paul Tudor Jones, who said at a conference in 2013 if a “manager is going through a divorce, redeem immediately… particularly when their kids are involved.”
“Relative to the pre-event window, fund alpha falls by an annualized 8.50 per cent during a marriage and 7.39 per cent during a divorce,” the paper states.
Alpha is the excess return over some benchmark a fund aims to generate.
Breaking up is hard to do, and the numbers prove it
These findings might considered bad news for those investing with Ken Griffin, who is currently going through a very public divorce right now.
However, judging by the paper, Griffin — estimated to have a net worth of $US5.5 billion — might not have that much to worry about: “A divorce shaves 15.68 per cent per year off a younger fund manager’s alpha but only 4.10 per cent per year off an older fund manager’s alpha.”
The paper quantifies ‘older’ and ‘younger’ as being at the median age for that particular life event (either marriage, or divorce). As an older fund manager, history says Griffin might not do as badly.
The only time when marriage is a good idea
Younger hedge fund managers, however, take good news in stride. The marriage game — and the investing world — is a young man’s (or, woman’s) game, the paper shows: “A marriage shaves 14.29 per cent per year off the alpha of older fund managers but adds 1.72 per cent per year to the alpha of younger fund managers,” it states.
It’s worth noting that an understanding of investing and trading probably helps, too.