- Advertisement -
- Advertisement -

Labor Market Helps Discipline Hedge Fund Managers

- Advertisement -

Stockholm (HedgeNordic) – With hedge fund managers seemingly having limited downside and fairly unlimited upside when running their strategies, one may fail to identify measures encouraging managers to reduce unjustified risk-aversion and act in the best interest of their investors. A recent study, however, finds evidence that the labor market helps discipline fund managers through the impact of fund liquidations on their careers.

Using data on 1,948 professionals who at one point in their careers worked for a hedge fund, a working paper titled “Career Risk and Market Discipline in Asset Management” evaluates whether fund managers are exposed to the risk of permanent career setbacks after their funds are liquidated following a period of underperformance. The data used in the study covers employment histories from 1963 to 2016. According to the researchers conducting the study, “hedge funds are particularly well suited to investigating how careers are affected by liquidations, as these are not rare events, especially in the wake of unsatisfactory performance.” The likelihood of someone working for a hedge fund to switch employers rises by 20 percentage points in the two years after liquidations, data shows.

The study finds that higher-ranking managers are more likely to suffer a career slowdown after the liquidation of their funds, with top executives (e.g., CEO, CFO, CIO) suffering an estimated compensation loss of around $200,000 on average regardless of the reasons triggering liquidations (either due to poor performance or other reasons). More interestingly, however, high-ranking managers of funds liquidated after two years of underperformance incur an estimated compensation loss that is $664,000 larger than the loss suffered by managers of funds closed after a period of reasonable performance. “Where preceded by normal performance, fund liquidation is not associated with a career setback” or significant compensation loss for high-ranking managers, the study concludes.

“Our results reveal a new facet of market discipline in asset management, operating via the managerial labor market. This labor market discipline is complementary to contractual incentives within the firm,” the authors argue.

The complete study can be downloaded here.

 

Picture © Vibe Images—shutterstock

Subscribe to HedgeBrev, HedgeNordic’s weekly newsletter, and never miss the latest news!

Our newsletter is sent once a week, every Friday.

Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

Latest Articles

The Narrative Has Shifted

Stockholm (HedgeNordic) – Stock markets globally lost ground for three consecutive months starting in August, only to witness a recovery in November. Following a...

Global Assets Founder Shifts Focus

Stockholm (HedgeNordic) – Lars Semb Maalen-Johansen, the responsible fund manager of Global Assets Dynamic under the umbrella of Global Assets, is bidding farewell to...

Case Hedgefond Building Stability and Momentum

Stockholm (HedgeNordic) – Case Hedgefond, once a billion-dollar fund in the Nordic hedge fund industry, has undergone a restructuring process since being taken over...

Ex-QQM Duo Unveils Funds Under Meriti Umbrella

Stockholm (HedgeNordic) – Ola Björkmo and Jonas Sandefeldt, known for developing the systematic market-neutral strategy behind QQM Equity Hedge, are spearheading the launch of...

Trend-Following and Long/Short Quality: Attack Wins You Games, Defence Wins You Titles

By Yash Panjabi and Graham Robertson – Man AHL: How can we protect against sharper, faster sell-offs? Or, better yet, how can we profit...

Asilo Argo’s Strong November Rally

Stockholm (HedgeNordic) – Despite enduring three straight losing months since August in tandem with broader stock markets, Asilo Argo is currently enjoying one of...

Allocator Interviews

Latest Articles

Man Institute Insights

Voices

Request for Proposal

- Advertisement -