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Brain Drain: Are Mutual Funds Losing Their Best Minds?

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  • Leonard Kostovetsky

    (Fulton Hall 320C, Boston College, Carroll School of Management, 140 Commonwealth Avenue, Chestnut Hill, MA 02467, USA)

Abstract

I investigate the effect of labor market competition from hedge funds on the mutual fund industry. I find evidence of an increasing flight of top-performing young managers from mutual funds, a drop in mutual fund returns, and deterioration in recruiting standards. These findings are not explained by differences in fund characteristics, risk loadings, fund styles, or the intervening dot-com bubble. The results suggest that industry-specific government regulations, especially ones focused on employee compensation, can lead to brain drains that have crippling effects on the health of the regulated sector.

Suggested Citation

  • Leonard Kostovetsky, 2017. "Brain Drain: Are Mutual Funds Losing Their Best Minds?," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-38, September.
    • Handle: RePEc:wsi:qjfxxx:v:07:y:2017:i:03:n:s2010139217500094
    DOI: 10.1142/S2010139217500094
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    Cited by:

    1. Nandita Das & Bernadette Ruf & Swarn Chatterjee & Aman Sunder, 2018. "Fund Characteristics and Performances of Socially Responsible Mutual Funds: Do ESG Ratings Play a Role?," Papers 1806.09906, arXiv.org, revised Feb 2023.
    2. Clark Liu & Johan Sulaeman & Tao Shu & P Eric Yeung, 2023. "Life is Too Short? Bereaved Managers and Investment Decisions," Review of Finance, European Finance Association, vol. 27(4), pages 1373-1421.
    3. Yue Xu, 2021. "Spillovers of Senior Mutual Fund Managers’ Capital Raising Ability," CREATES Research Papers 2022-03, Department of Economics and Business Economics, Aarhus University.
    4. Yuyan Guan & Congcong Li & Hai Lu & M. H. Franco Wong, 2019. "Regulations and Brain Drain: Evidence from Wall Street Star Analysts’ Career Choices," Management Science, INFORMS, vol. 65(12), pages 5766-5784, December.
    5. Hong, Xin & Kang, Di & Wang, Zhibin, 2021. "Do mutual funds lose talent to hedge funds? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 679-689.
    6. Huang, Ying Sophie & Liang, Bing & Wu, Kai, 2021. "Are mutual fund manager skills transferable to private funds?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 614-638.

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