The Effects of Mutual Fund Managers’ Characteristics on Their Portfolio Performance, Risk and Fees

Abstract

The purpose of this study is to test whether a mutual fund managers’ characteristics help to explain fund per$ormance, risk and fees. The statistical tests consider per&or- mance, risk andfees simultaneously to avoid biased results produced by earlier studies that ignore simultaneity. Results show that a fund’s performance, risk andfees are sig- nificantly impacted by its manager’s characteristics. All else equal, investors can expect better risk-adjusted performance from younger managers with MBA degrees who have longer tenure at their funds. Also, funds with low fees and more diversified portolios perform better. The most sign~~cant predictor ofpe~o~ance is the length of time a manager has managed his or her find (tenure). Funds that keep administrative expenses low also perform relatively well, but large management fees do not necessar- ily imply poorer performance. Apparently, a large management fee signals superior inves~ent skill which leads to better perfomtance.