Life cycle performance of hedge fund managers

We document that hedge fund managers exhibit a hump-shaped relationship between their work experience and performance. This observed pattern reflects the dynamic interplay between two contrasting effects of career concerns and incentives channel. In the early years of their careers, fund managers face significant career concerns, which exert high pressure to induce effort in their jobs. Meanwhile, managers also have a strong incentive to build their expertise, leading to better performance. However, as their performance steadily ascends, the rate of improvement decelerates. This is because their career concerns start to ebb away, leading to a cutback on effort that offsets their incentive effects. Consequently, after reaching its peak around the five-year mark, their performance tends to deteriorate afterwards. Additionally, we find that manager’s investment skill contributes positively to fund performance and female managers or master degree holders perform better than their counterparts. Fund size links to performance through diminishing returns to scale. Smaller funds exhibit better performance, whereas larger funds attract better managers. Managers in financial centers outperform their peers in non-financial centers due to both sorting and learning effects. Managers with a prior fund-related background perform better than their peers without it. However, the outperformance of both managers in financial centers and those with fund-related background diminishes in the long run. In a natural experiment setting, we show the stock market crash had a permanent negative impact on the performance of managers. Our findings are robust across varying numbers of manager-fund overlaps, investment strategies, and alternative performance measures. © 2025 Elsevier Ltd. All rights are reserved, including those for text and data mining, AI training, and similar technologies.