The Investment Value of Fund Managers’ Experience Outside the Financial Sector

Abstract

Human capital acquired while working in other industries before joining fund management provides fund managers with an information advantage. Fund managers exploit this advantage by overweighting their experience industries, picking outperforming stocks from these industries, and timing investments in their experience industries better than in other industries. These managers’ superior information gets impounded into stock prices slowly, allowing for profitable mimicking strategies. Families exploit their manager’s industry-specific human capital by employing their investment ideas broadly in other funds. The investment value of industry experience is unaffected by whether the manager with such experience is in a team or not.

Keywords: Investor Learning, Investor Experience, Mutual funds

JEL Classification: G23, D83, J24