Whom You Know Matters: Mutual Fund Workplace Networks and Investment Performance
Abstract
Do workplace ties among mutual fund managers channel value-relevant information, and what organizational structures facilitate workplace information flows? We introduce a novel measure of skill-weighted inter-fund comanager connections (ICC) to answer this question. ICC funds exhibit more similar portfolio holdings to connected funds and higher risk-adjusted returns than non-ICC funds. Causality is identified through plausibly exogenous shocks from superstar manager departures. Sharing value-relevant information is the source of this advantage: ICC funds generate abnormal returns on overlapping holdings in non-local and hard-to-research stocks. Finally, we present the first evidence of the evolution of workplace networks in the mutual fund industry. 1 Delegated investment managers earn economic rent from their informational advantages. Prior research shows that connections with other informed economic agents play an important role in explaining mutual fund portfolio decisions and performance. For instance, extant studies link fund performance to educational ties with corporate board members (Cohen, Frazzini, and Malloy 2008) and social connections with financial analysts and auditors (Gu et al. 2019; Chen et al. 2022). Other work highlights the role of geographical proximity in explaining fund portfolio overlaps, attributing such overlaps to social connections among portfolio managers (Hong, Kubik, and Stein 2005; Pool, Stoffman, and Yonker 2015). However, relatively little is known about the extent to which professional managers' social connections in the workplace influence their portfolio performance. Fund managers’ professional ties are primarily forged within their respective fund families. On the one hand, membership in a fund family facilitates better performance through economies of scale and enhanced information sharing (e.g. Chen et al. 2004; Brown and Wu 2016). On the other hand, managers within the same family face both competitive and collaborative ince