If Barack Hussein Obama was a mutual fund manager, he probably wouldn’t succeed. Not because of his performance, but rather his name.
That’s the finding of a new paper that examines the causal relationship between a manager’s name and the assets they’re able attract.
“When people hear the name of a person, either consciously or sub-consciously they typically assign a host of attributes to that person, which are related to the “group” (i.e., country of origin, religion, ethnicity, culture, etc.) associated with the name,” the authors, led by Alok Kumar of the University of Miami School of Business Administration, write. “Often, name-related stereotypes get activated almost spontaneously without much conscious effort. These stereotypes consequently may color the initial impressions of the person. For example, names such as “Zaheer Sitabjhan” or “Toshihiko Tsuyusaki” are likely to invoke a different reaction than typical American names like “Michael Brown” or “Robert Stevens.”
And this applies to investors biases with fund managers.
“The mutual fund setting is particularly attractive for studying social bias because fund management is one of the very few occupations where good measures of job performance are available,” they note. “In particular, the performance of fund managers is observable from fund returns, which allows us to overcome challenges in the prior literature where it has been difficult to account for productivity differences that might be correlated with observable individual attributes.”
One of their key findings is that flows in funds managed by individuals with foreign-sounding names are around 10 percentage points lower, compared with funds managed by individuals with typical American names.
“Further, compared to an otherwise identical fund managed by an individual with an American name, managers with foreign-sounding names experience 14.2 percentage points higher outflows and 46.7 percentage points lower inflows when their recent performance is in the bottom or the top decile of all mutual funds, respectively. We observe these flow differences even though funds managed by individuals with foreign-sounding names are very similar to other funds in terms of performance.”
The results from several additional tests support the taste-based discrimination conjecture, they conclude.
“In particular, we find evidence of taste-based discrimination using the 9/11 terrorist attacks as an exogenous event that may have exacerbated negative stereotypes against individuals with names of South-Asian and Middle-Eastern origin. Following the 9/11 terrorist attacks, fund managers with Middle-Eastern and South-Asian sounding names experience a drop in fund flows relative to other managers with foreign-sounding names. We also exploit a change in the law governing disclosure of individual names for team-managed funds and demonstrate that fund management companies were more likely to assign managers with foreign-sounding names to teams before the change, presumably because they were then effectively invisible to fund investors.”
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
