Just got back from a romantic honeymoon? Congratulations, you’ve just upset your entire LP base. Turns out the period surrounding a fund manager’s marriage or divorce results in a performance drop.
Researchers from the University of Florida and Singapore Management University found that fund alpha falls by an annualized 8.50 percent during a marriage and 7.39 percent during a divorce. Another interesting finding: younger, more energetic managers handle marriages better while older, relatively calmer managers are better at divorce.
For LPs, it’s clear how they can use the study’s findings: begin incorporating a little relationship digging during due diligence. Past returns may be good indicator of future performance, but better to play it safe and ask how the fund manager’s last romantic dinner went too.