Long story made short – fund managers from poor backgrounds make better fund managers than those from wealthy backgrounds. Which does make sense when you think about it not only in terms of drive and the will to succeed without a safety net but also a greater understanding of the need to husband resource.
We study the relation between mutual fund managers’ family backgrounds and their professional performance. Using hand-collected data from individual Census records on the wealth and income of managers’ parents, we find that managers from poor families deliver higher alphas than managers from rich families. This result is robust to alternative measures of fund performance, such as benchmark adjusted return and value extracted from capital markets. We argue that managers born poor face higher entry barriers into asset management, and only the most skilled succeed. Consistent with this view, managers born poor are promoted only if they outperform, while those born rich are more likely to be promoted for reasons unrelated to performance. Overall, we establish the first link between family descent of investment professionals and their ability to create value.