Study: Both Marriage and Divorce Lead to Negative Hedge Fund Performance

Mar 25 2015 | 6:51pm ET

Trouble at home leads to trouble in the market for fund managers, according to researchers at the University of Florida and Singapore Management University. When a hedge fund manager gets divorced, he or she underperforms by 7.4%.

But what is more surprising is that marriage can negatively affect fund managers even more. University researchers Yan Lu, Sugata Ray, and Melvyn Teo reached these conclusions in the study: “Limited Attention, Marital Events and Hedge Funds." The study examined managers' marriages and divorces in 13 states from January 1994 to December 2012.

“We find that marriages and divorces are associated with significantly lower fund alpha, during the six-month period surrounding the event and for up to two years after the event,” the researchers said. "A fund’s alpha is its return in excess of the fund’s comparative benchmark index."

The research indicates that a hedge fund’s alpha fell by an annualized 8.50% during a manager’s marriage and 7.39% during a divorce.

"Older managers who run liquid, high-tempo investment strategies are more negatively impacted by marriage," the researchers wrote in a previous framework of their research. "Younger managers who engage in illiquid investment strategies with a longer investment horizon are more susceptible to the deleterious effects of divorce."

One of the more notable quotes from the researchers' paper comes from Paul Tutor Jones II, who shared his take on divorce and hedge fund management.

"One of my No. 1 rules as an investor is as soon as… I find out that [a] manager is going through divorce, [I] redeem immediately. Because the emotional distraction that comes from divorce is so overwhelming… You can automatically subtract 10 to 20 percent from any manager if he is going through divorce," he told Business Insider in 2013.


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