See also The real big money is run by a physicist , The real smart guys , A tale of two geeks.
What a Difference a Ph.D. Makes: More than Three Little Letters (http://ssrn.com/abstract=2344938)An excerpt from the paper:
Abstract: Several hundred individuals who hold a Ph.D. in economics, finance, or others fields work for institutional money management companies. The gross performance of domestic equity investment products managed by individuals with a Ph.D. (Ph.D. products) is superior to the performance of non-Ph.D. products matched by objective, size, and past performance for one-year returns, Sharpe Ratios, alphas, information ratios, and the manipulation-proof measure MPPM. Fees for Ph.D. products are lower than those for non-Ph.D. products. Investment flows to Ph.D. products substantially exceed the flows to the matched non-Ph.D. products. Ph.D.s’ publications in leading economics and finance journals further enhance the performance gap.
... The existing literature has explored some aspects of the link between managerial talent and both ability and education in the context of money management. For instance, Chevalier and Ellison (1999) find that mutual fund performance is related to certain educational characteristics of mutual fund managers. In particular, mutual fund managers graduating from undergraduate institutions with higher average SAT scores achieve higher raw fund returns. Similarly, Chevalier and Ellison (1999) also find that raw fund returns achieved by managers with an MBA outperform those without an MBA by 63 basis points per year. However, upon adjustments for risk, only the differential in risk-adjusted performance between the managers graduating from undergraduate institutions with higher average SAT scores and those graduating from undergraduate institutions with lower average SAT scores persists, whereas the risk-adjusted performance differential between funds managed by MBAs and non-MBAs disappears. ...Conclusions:
In this paper, we analyze the relation between investment performance of domestic equity products managed by institutional money manager and a broad spectrum of managers’ demonstrated academic ability. We focus on possession of a Ph.D. degree, as well as managers’ publication records in top outlets in economics and finance). Using gross returns (returns measured gross of fees, but net of transaction costs), we find that the performance of investment products managed by Ph.D.s is superior to the performance of non-Ph.D. products along several metrics widely employed to measure risk-adjusted product performance (objective-adjusted returns, Sharpe ratio, four-factor alpha, information ratio, and manipulation-proof performance measure). The performance differential in gross returns is preserved, even slightly enhanced, once fees are taken into account (fees for Ph.D. products tend to be slightly lower than fees for non-Ph.D. products).
Hiring employees to maximize assets under management is of first-order importance for money management companies. We find that net flows to Ph.D. products substantially exceed net flows to the non-Ph.D. products matched by style, assets under management, and recent performance. This difference is particularly accentuated in the top quintile of past performance. While the underlying cause of the relation between flows and educational attainment may ultimately stem from ability, knowledge, or soft skills, this finding provides a clear economic justification for the aggressive recruitment individuals holding a Ph.D. to serve in key positions in money management companies.
Finally, our analysis reveals that, among Ph.D. firms, a product’s performance is strongly positively related to the firm’s key personnel publication record in the top outlets in economics and finance. This finding indicates the extent to which proven academic ability at the highest percentiles of achievement translates into successful institutional money management.
