First impressions really do count.
Hedge fund managers who look trustworthy attract more clients than their more undependable-looking counterparts, according to a study.
But their clients also saw lower returns on their investments, rendering them less successful than their colleagues who had been seen as less trustworthy.
“There is no evidence to suggest that perceived trustworthiness predicts actual managerial skill,” said Dr Roy Zuckerman of Tel Aviv University’s Faculty of Management.
“On the contrary, we found that the ‘trustworthy’ managers tended to make less money for investors and more money for themselves by leveraging the way they looked and how they presented themselves. ‘Untrustworthy’ execs were found to charge lower fees and generate more income for investors and less for themselves.”
The research was conducted in collaboration with Dr. Ankur Pareek of Rutgers University and published in the journal Social Science Research Network.
According to Dr Zuckerman, personal appearance plays a dominant role in establishing the perceived trustworthiness of a hedge fund manager.
While facial appearance is an important determinant of trustworthiness for all individuals, institutions and high net worth individuals use face-to-face meetings with hedge fund managers as an important criterion for making investment decisions.
The research used dozens of publicaly available photographs of hedge fund managers found on Google. The pictures were rated for personal characteristics, such as attractiveness, by a group of 25 to 30 people on an online survey platform.
The study found that the managers characterised as “less trustworthy” by the survey in fact performed much better than their “upright” colleagues.
“When hedge funds begin to perform poorly, people are less likely to pull out their investments if their managers appear trustworthy,” said Dr Zuckerman.
“But this just should not be the case. All evidence points to the fact that appearance should not matter in hedge fund decisions by investors. Unfortunately, in this study we found that it does.”
Dr Zuckerman says people should ignore the way a person looks when researching investment opportunities.
“Focus only on the numbers, look at accounting reports,” he says. “The idea is to focus on the hard data, and ignore the soft data.”
He is currently researching repeat insider trading offenders.