Success Factors in Fund Managers
Researcher Prof. Dr. Alexander Kempf, Prof. Dr. Michael Wagner
Project Description Germany is increasingly developing itself as a country of fund savers. However, the wide variety of investment funds poses investors with the problem of finding a fund that suits them. Making a wrong decision when choosing a fund can be an expensive mistake. Frequent switching between funds of various fund companies is a costly strategy due to the surcharges involved, whereas holding on to a "bad" fund can lead to large losses, particularly in the long-term. Therefore, the investor is posed the question of how to find a fund that will develop well in the future.

Typically, investors are given the advice of choosing a fund that has developed especially well in the past. The argument for these funds is based the activities of a fund manager with apparently above-average abilities. A number of empirical studies have investigated if there is a significant positive correlation between the performance of a fund in the past and in the future. The results are sobering. Funds that had developed best in the past did not develop any better or any worse in the future than the average of all funds. Persistent fund success, apart from over short investment periods, could not be established. A possible explanation for this is that managers of investment funds often change. Good fund managers are promoted and receive funds with a larger investment capital to administer. Bad managers, on the other hand, are demoted or even dismissed. In view of this large fluctuation in a fundís management, it is hardly surprising that no persistence can be found in a fundís performance. However, one cannot conclude from this that there arenít any fund managers who regularly achieve a certain investment success. Persistence may be observed in a fund managerís performance, but not at fund level. However, so far no funded research has investigated this. The aim of this project is therefore to plug this gap in the literature. In doing so, two key questions should be answered:
  1. Are there fund managers who systematically achieve a better success than their colleagues do?
  2. Which individual attributes characterise systematically successful fund managers?
Both questions are not only of importance from an academic point of view, but also offer a great deal of practical relevance. A performance persistence that may potentially exist at manager level allows the investor to predict the future success for the manager, and therefore for the funds he manages. For fund companies, the study is of use as it provides information on the success factors within fund management. For some companies this knowledge can be taken into account when they make decisions regarding employment, for others it may be used to develop targeted training schemes in order to reduce any weaknesses that may have been identified in individual fund managers.
Funding The preliminary study will be funded by the Centre for Empirical Economic and Social Research. A proposal for third party funding is intended.
Data
  • Equity funds. All from fund companies with membership of the Bundesverband Investment und Asset Management e.V. (BVI).
  • Database of fund managers with anonymous career-biographical and activity-specific details, all from fund companies with membership of the Bundesverband Investment und Asset Management e.V. (BVI) (under construction).
Methods
  • Biography Research
  • Standardised Interview