According to a recent paper entitled ” The Small World of Investing: Board Connection and Mutual Fund Returns ,” portfolio managers are getting an inside track because of their education networks.
The paper suggests that the overweighting and returns were not driven by industry, firm, fund, or school characteristics, but found that fund returns were concentrated around corporate news announcements.
For instance, portfolio managers earned significantly higher returns on connected holdings (involving someone in their education network) in the months when news was released from firms in their network, while there was no difference in returns of non-connected stocks in months of news or no-news.
The findings also show that both the overweighting and return increase with the strength of the social connection.
For instance, the strongest connection – a portfolio manager and senior company officer who attended the same school, at the same time and received the same degree – results in a 47% overweighting relative to non-connected stocks, and excess portfolio returns of 16.05%, annually on average, compared to 7.71% for all holdings and 7.69% for non-connected holdings.
According to the paper, Harvard, Stanford, Wharton, Columbia, and New York University are the top most connected schools in the sample of 354, with Harvard being connected to 54% of all of the assets under management by active equity mutual funds.