Race and hedge funds

• Main Authors: LU, Yan, NAIK, Narayan Y., TEO, Melvyn
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Race; Racial bias; Discrimination; Barriers to entry; Minorities; Homophily; Education; Hedge funds; Finance and Financial Management; Portfolio and Security Analysis; Race and Ethnicity
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6999; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7998/viewcontent/SSRN_id4070484.pdf
• Institution: Singapore Management University

We find that minority operated funds deliver higher alphas, Sharpe ratios, and information ratios than do non-minority operated funds. Moreover, minority fund managers attended more selective schools, worked at higher status investment banks, and are more likely to hold post-graduate degrees. Yet, minority managers raise less start-up capital and attract lower investor flows. Racial homophily fuels investors' appetite for non-minority funds. To address endogeneity, we leverage on an event study of minority manager fund transitions and an instrumental variable analysis that exploits racial imprinting during childhood. The results suggest that minorities face significant barriers to entry in the hedge fund industry.