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

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Abstract
The purpose of this study is to test whether a mutual fund managers' characteristics help to explain fund performance, risk and fees. The statistical tests consider performance, risk and fees simultaneously to avoid biased results produced by earlier studies that ignore simultaneity. Results show that a fund's performance, risk and fees are significantly 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 portfolios perform better. The most significant predictor of performance is the length of time a manager has managed his or her fund (tenure). Funds that keep administrative expenses low also perform relatively well, but large management fees do not necessarily imply poorer performance. Apparently, a large management fee signals superior investment skill which leads to better performance.

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