Are You Smarter than a CFA'er?

Manager Qualifications and Portfolio Performance

Oguzhan Dincer
Illinois State University
[email protected]

Russell B. Gregory-Allen*
Massey University
[email protected]

Hany A. Shawky
University at Albany, SUNY, Albany
[email protected]

July 2010

*
Corresponding author

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 Are You Smarter than a CFA'er?

Manager Qualifications and Portfolio Performance

Abstract
Several studies have examined whether a portfolio manager having an MBA degree or
being a CFA charter holder leads to superior portfolio performance, with generally mixed results.
Possible reasons for the mixed findings are that most studies have considered the impact of a
manager having either an MBA or a CFA separately, have not controlled for managers’ style
targets, and have used different performance metrics. We examine separately and jointly the
impact of portfolio managers having an MBA, a CFA and investment experience on portfolio
performance, while controlling for market conditions and style targets, using five different
portfolio performance measurements, and two different risk measurements. For individual
models or methods, we find various weak evidence consistent with most previous literature.
Once we take all the models and methods jointly into consideration, we find no significant
difference in returns attributable to MBA, CFA or Experience, but more significantly, we find
that on average, CFAs reduce and MBAs increase portfolio risk.

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 Are You Smarter than a CFA'er?: Manager Qualifications and
Portfolio Performance

Introduction
Researchers have long been interested in the agency aspects of the management of
investment portfolios. This has led to a large number of studies that attempt to relate manager
characteristics to portfolio performance. Human capital theory implies that managers with
greater ability should, at least in the long run, have portfolios with better performance than
"average". A natural extension of this is that managers with better education ought to exhibit
better performance. Common forms of education for portfolio managers are generally a formal
MBA degree, a CFA certification, or accumulated experience from the School of Hard Knocks.

Previous research in this area has found mixed and conflicting results, but has used a
variety of different methods. We consider multiple methods to reconcile all the results.
Collectively, we find that after adjusting for risk and portfolio style targets, there is no significant
difference in the return performance of these portfolios that is attributable to manager
educational qualifications. More importantly however, we find that managers with CFA
designations have portfolios with substantially lower risk, while managers with MBA degrees
have portfolios with higher levels of risk.

Related Literature
Previous research has focused primarily on two issues: First, does the CFA designation
add value in terms of providing better portfolio performance? Second, does an MBA degree add
value? The stream of studies on the value of an MBA has also had some interest in relating the
“quality” of the MBA granting school to the portfolio performance of the manager. A few
studies have included both the MBA and the CFA in their analysis and some have also included
other manager characteristics, such as gender and age.

A review of the literature reveals that it is difficult to discern a pattern with respect to the
relative value of a given educational degree. As noted recently in Wright (2010), one of the
problems in finding consistency is the variation in methodologies and performance measures

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used. Studies use different measures of return, different comparison factors, and different
samples. Some studies look only at the value of a CFA designation, others examine only the
value of an MBA, and some look at both. With respect to methodology, some studies use returns
in excess of a benchmark, some use CAPM, and others use 3- or 4-factor models.

Shukla and Singh (1994) were the first to examine the value of a CFA designation. They
found that portfolios with at least one CFA manager on the team performed better than portfolios
without such a person. Soon after, Golec (1996) took a similar approach, examining the
performance of MBAs, but also considering age and job tenure, and adding style controls to the
estimation model. He found evidence of better performance from younger managers with longer
tenure, and from managers with MBAs.

In a similar vein, Chevalier and Ellison (1999) and Gottesman and Morey (2006)
examine MBAs, but focus on the quality of the education, using average SAT or GMAT scores
as the quality proxy. They find that higher quality schools produce managers who yield better
performance, and that age reduces return, while experience decreases beta.

Gottesman and Morey (GM 2006), Boyson (2002), Friis and Smit (FS 2004), Switzer and
Huang (SH 2007), and Li, Zhao and Zhang (LZZ 2008) consider MBA and CFA, most including
tenure. For MBAs, all except Boyson find no impact, while Boyson finds MBAs underperform.
For CFAs, GM find they underperform, SH and FS find CFAs outperform, and Boyson finds
mixed evidence. For tenure, SH and LZZ find no impact; GM and Boyson find a negative
impact.

These widely varying results are somewhat disconcerting. The studies vary in approach
using different models, with and without risk-controls, and over different time periods - some
over strongly bullish periods, some strongly bearish. Further, they have used different
CFA/MBA definitions, some have not controlled for survivor bias, and none have controlled for
overlap between CFAs and MBAs.

What is missing from the current literature is a study that directly compares CFA, MBA
and Experience, while controlling for CFA/MBA overlap, risk and style factors, survivor bias,
and unusual market periods. This study does just that.

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 We examine performance using benchmark and market adjusted returns, risk-adjusted
returns based on the Jensen (1968) alphas, the Fama-French (1993) three factor alphas and the
Carhart (1997) four-factor model alphas. We do this with a survivor-bias-free dataset during a
relatively flat market. We also control for portfolio size and the style targets employed by the
managers. Specifically, we compare in risk-adjusted and style controlled models, the relative and
marginal benefits of having an MBA, a CFA or Experience on portfolio performance.

Data and Empirical Methodology

Data

We use the PSN Database, a unique dataset which contains quantitative and qualitative
information on over 11,000 independent equity and fixed income portfolios privately managed
by over 2000 companies. The manager of each of the portfolios fills out a lengthy questionnaire,
and PSN compiles this information into a flexible and searchable database. This data is marketed
to investment professionals, primarily Pension Plan Sponsors, Endowments, Foundations and
corporate and institutional money managers who use it as a tool to identify and select investment
managers. Managers have a strong economic incentive to be complete and accurate in their
reporting, since PSN is the only database widely used by institutions to identify funds for their
clients.

Our sample is limited to those portfolios where we have CFA and MBA data, that are
AIMR compliant, and which have at least 12 months of returns data over the study period, 2005-
2007.1 We eliminate funds where the fund family has less than $100 million in assets under
management (AUM), and individual portfolios with less than $1 million. In our final sample of
890 funds, over 500 list more than one manager. For each fund, there is a Primary manager,
which PSN designates as the Key Portfolio Manager (KPM), and as many as nine other
managers, although the maximum number of managers observed in our sample for any one fund
is six.

1
As observed in Gottesman and Morey (2006), a very strong bull market (or even a strongly bearish market)
could have an impact on comparing managers with different risk aversion. So, we use a relatively calm market
period just before the recent financial crisis. We identified managers as of end of 2006. As Fabozzi, et al (2008)
note, average manager tenure is 3 years, so we start one year before, and go one year after. This allows us to be
reasonably confident that the majority of these funds were managed by these managers during that period.

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 For each manager, there is information on age, professional designation, graduate degree,
etc. In some cases, the professional designation column was blank but the manager's name
included 'CFA' -- in such cases, we considered that manager to be a CFA. For graduate degree,
often the listing was unambiguously 'MBA'. However, sometimes it was entered as 'Master', and
sometimes as 'Master-Finance' -- in the latter case, we considered that manager as an MBA, in
the former we did not.2 Table 1 provides summary statistics for our sample. Of the funds in our
sample, 356 of the Key Portfolio Managers (KPM) have the CFA designation, 253 have an MBA
degree, and 159 have both. Among all of the portfolios, 408 have at least one CFA on the team
and 309 had at least one MBA. The average job tenure for KPMs is 12.16 years.

(Place Table 1 about here)

For the 890 portfolios in our sample, the average Active return (portfolio return in excess
of the benchmark) is 2.9 basis points, the average excess return over the SP500 is 6.1 bps, and
performance measured by the Carhart alpha is -8.2 bps. In addition, the average Tracking Error
(TE) is 1.34, and the average Information Ratio (IR) is 0.6 bps. If we sort the sample into size
quartiles, we do not see much difference in these averages, except in the case of the Information
Ratio where the smallest funds have an IR value of -0.5 bps, while the largest group have an IR
value of 1.6 bps.

In terms of style, we have data on what specific strategy the fund managers identify as
important. For example, if the manager says that growth is important to their fund i, then our
dummy variable is set equal to one (Groi= 1). About 38% of funds are Growth, 31% are Value,
and 20% are Core (include both Growth and Value), and about 12% are some other characteristic
(PSN has about 25 total possible style characteristics). Once again, fund size does not appear to
reveal any consistent differences among these strategies.

One of the issues in portfolio analysis that is well-known to practitioners but often
overlooked by academics, is that managers use different benchmarks and that managers often
change their benchmarks. We provide in Appendix 1 the frequency distribution of the

2
In the few cases when graduate degree listed PHD, it rarely indicated a major. For this reason, we do not
consider PHD.

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benchmarks used each year by our sample funds. If we have no benchmark reported, that fund is
removed from our sample (rather than assume the typical SP500). In our sample, there are 32
different benchmarks used by funds at some point during our examination period, and about 8%
of funds changed their benchmark during that time. The S&P 500, Russell 1000 Growth and
Russell 1000 value are the most commonly used benchmarks, at 21.6%, 14.5% and 11.4%,
respectively.3

Empirical Methodology

In this section, we examine a variety of risk adjustment models in which we control for
fund size and management styles. In order to examine the marginal performance of individual
fund managers that is due to the type of education, we use a two stage regression procedure.
First, we estimate portfolio performance using five different but widely used performance
measures: benchmark adjusted return (Active return), Market Out-performance4, the original
Jensen (1968) alpha, the Fama and French (1993) three factor model and alpha from the Carhart
(1997) 4-factor model:

(1) (
ActiveRet i = mean Ri ,t − RBi ,t
t
)
MktOutperformancei = mean ( Ri ,t − RSP 500,t )
(2)
Ri = α Jensen ,i + β1 RSP 500 + ε i
(3)
Ri = α FF ,i + β 1 RSP 500 + β 2 SMB + β 3 HML + η i
(4)
Ri = α Carhart ,i + β1 RSP 500 + β 2 SMB + β3 HML + β 4 MOM + ε i
(5)

where:
Ri = return for fund i, in excess of fees and the 90 day US Tbill rate,
RSP 500 = return on the S&P500, in excess of the 90 day US Tbill rate,

3
For each fund and each year, we determine what benchmark the fund reports using. About 8% of the funds
changed their benchmark during our sample period. See Appendix 1 for details.
4
Of course, for any fund that uses SP500 as their benchmark, Market Out-Performance and Active return will
be identical, but only 22% of our sample have this issue (see Table A.1).

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 RBi ,t = return on fund i’s benchmark in year t, in excess of the 90 day US Tbill rate,
and SMB, HML and MOM are the Fama-French and Carhart factors.

In a second stage regression, we use each of these performance measures in a cross-

sectional dummy variable regression to estimate the marginal contribution of the various factors
on performance. We define dummy variables for each of our potential classifications as:

CFA = 1 if the KPM (Key Portfolio Manager) has a CFA

MBA = 1 if the KPM has an MBA
CFAonly = 1 if the KPM has a CFA, but not an MBA
MBAonly = 1 if the KPM has an MBA, but not a CFA
MBACFA = 1 if the KPM has both a CFA and an MBA
AnyCFA = 1 if at least one manager on the portfolio team has a CFA
AnyMBA = 1 if at least one manager on the portfolio team has an MBA
KPMten = years the KPM has been on the job

It should be noted however, that a regression based on these classifications and one of the
performance measures does not take into consideration the fact that different types of managers
have different objectives and styles. Moreover, Berk and Green (2004) and others have
suggested a strong link between portfolio size and performance. Thus, we add as control
variables: log of fund size, and 3 more dummy variables to control for the style target of the fund
(Growth, Value or Core).

Our first model simply considers education type and experience for the Key Portfolio
Manager:

α i = γ 0 + β1Groi + β 2Vali + β3Cori + β 4 ln( Sizei ) + β5 CFAi +

(5)
β 6 MBAi + β 7 KPMteni + ε i

Where α i represents one of the five the performance metrics, and the other variables are
defined as described above.

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 To account for the overlap between CFAs and MBAs, we also consider the unique
classifications of CFAonly, MBAonly, and MBA and CFA in the more comprehensive
regression model:

α i = γ 0 + β1Groi + β 2Vali + β 3Cori + β 4 ln( Sizei ) + β 5 CFAonlyi +

(6) β 6 MBAonlyi + β 7 MBACFAi + β8 KPMteni + ε i

In addition to considering the qualifications of the key portfolio management, we also

examine the impact on performance of any member of the management team having a CFA or an
MBA:

α i = γ 0 + β1Groi + β 2Vali + β3Cori + β 4 ln( Sizei ) + β5 AnyCFAi +

(7) β 6 AnyMBAi + ε i

An important aspect in the management of investment portfolios is controlling for risk.

One way to measure risk is through estimating the standard market beta. Thus, similar to our
return equations, we directly model risk in order to estimate the marginal contribution of the
educational methods on portfolio risk as:

Jenβi = γ 0 + β1Groi + β 2Vali + β 3Cori + β 4 ln( Sizei ) + β 5 CFAi +

(8)
β 6 MBAi + β 7 KPMteni + ε i

where JenB is the beta from Jensen’s alpha model, estimated using equation (2). As with
the return equations, we estimate the risk models both with the general CFA/MBA
classifications, the CFAonly and MBAonly, and the AnyCFA and AnyMBA classifications.

Another common metric in the industry used to assess portfolio risk is through estimating
the portfolios’ tracking error. Although there are some competing definitions, the most widely
used measure of TE is the standard deviation of the difference between the returns of the
portfolio and the portfolio’s benchmark:

di ,t = Ri ,t − RBi ,t ,t
TEi = std ( d i ,t )
(9)

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 It is clear that a fund matching the benchmark exactly will have a TE=0, and the farther
away the fund is from the benchmark the higher the TE. Obviously, for a manager to outperform
the benchmark, he/she must have a non-zero tracking error. Thus, in addition to estimating the
impact of educational level on portfolio risk as measured by market beta, we also examine its
impact on risk as measured by the portfolio’s tracking error. We estimate regression models
exactly as those described in equation (8), replacing the dependent variable with TE as the risk
metric.

Empirical Findings
Impact of Manager Qualifications on Portfolio Returns

We begin with the simplest model, estimating cross-sectional regressions with each of
our performance metrics, in order to distinguish between the performance of portfolios whose
managers have an MBA or a CFA. In Panel A of Table 2, we see that neither an MBA nor a
CFA add value, regardless of the measure used, with or without control variables. Experience,
on the other hand, shows a slight tendency (at 10% level) to underperform, when evaluated with
Market Out-Performance5.

(Place Table 2 about here)

A more complete way of classifying managers is presented in Panel B of Table 2. In

these regressions, we consider managers who only have a CFA or an MBA, as well as those who
have both (compared against those who have neither), and also include the Experience of the key
portfolio manager. An MBA who does not have a CFA seems to add value for Active return, but
not for Market Out-Performance or any risk-adjusted return. CFAs slightly add value (at 10%)
for Market Out-Performance, but only without controls. For Market Out-Performance,
Experience again shows a tendency to underperform.

The result pertaining to the apparent superior portfolio performance for managers with
MBAs is similar to the findings in some previous studies. However, once we add a more

5
Complete regression results are shown in the Appendix.

10

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complete risk model, all such significant results vanish6. As shown in the “Risk-Adjusted
Returns” columns of Table 2, whether we use the single-factor (Jensen) market model, the 3-
factor Fama-French model, or the 4-factor Carhart model, the impact on portfolio performance
from the key portfolio manager having an MBA or CFA is not significant.

Since most portfolios are managed by teams of managers, it is possible that any manager
on the team having a particular education might help the portfolio. Similar to Shukla and Singh
(1994), we show in Panel C of Table 2 the results of any one manager on the team having an
MBA or a CFA, by estimating the relationship between the portfolio return measures on the
variables AnyMBA and AnyCFA. As before, when measuring performance with active return,
having an MBA on the team has a slightly significant benefit (only at the 10% level); but for any
other return model, there is no significant impact of educational qualification on portfolio
performance.

Summarizing the return estimations, what we have so far is that the type of education or
experience a manager has does not have much impact on return. Furthermore, what little impact
is found seems to be completely a function of exactly how we measure performance and how we
categorize managers. This may shed some light on why many previous studies have had
conflicting results.

Impact of Manager Qualifications on Portfolio Risk

While portfolio returns get more attention as a performance yardstick, controlling risk is
just as important as generating large positive returns. In this subsection, we examine in detail
whether manager qualification has a significant impact on the management of risk. We use both
the portfolio’s market beta and its tracking error to measure portfolio risk. We model each of
these risk measures in a manner similar to the return equations described above.

Once again, we begin with the simplest model, regressing market beta and tracking error
on MBA, CFA and Experience. We find (Table 3, panel A) that neither MBAs nor CFAs have

6
Moreover, as seen in the Appendix Table A.3, the R-squares from the regressions showing this apparent
positive performance are essentially 0.

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any significant impact on Beta, and with the control variables, MBAs increase Beta (significant
at the 1% level). We further find that Experience decreases Beta risk, both with and without the
control variables. When we use Tracking Error as the risk measure, we again find that MBAs
significantly add risk, and that CFAs significantly reduce risk (both with and without the control
variables).

(Place Table 3 about here)

In Panel B of Table 3, we consider the classifications of Experience, managers with only

an MBA or CFA, and those with both MBA and CFA. When risk is measured by the portfolio’s
tracking error, CFAs are found to reduce risk, but MBAs and Experience have no impact. When
risk is measured by the portfolio’s market beta, we find that having an MBA increases risk and
having Experience reduces risk.

In Panel C of Table 3, we examine the potential impact of any member of the

management team having an MBA or CFA. The results show that for both risk metrics (Beta
and TE) having an MBA significantly increases portfolio risk (at 10% without controls, 1%
with). Furthermore, we find that when we use the tracking error as a measure of risk, managers
having a CFA reduce portfolio risk, both with and without the model controls (at 1%).

Summarizing the risk estimations, we find that MBAs tend to increase risk and CFAs
tend to reduce risk. This finding is relatively insensitive to how we classify managers or how we
measure risk.

Summary and Conclusions

Using a unique database which provides manager qualifications along with many other
portfolio characteristics, we study the relation between manager qualification and the
performance of equity portfolios. We extend the work of previous research, by examining
several different performance measurement techniques, and several different ways of classifying
managers. Specifically, we apply five different methods of measuring portfolio out-performance,
two different measures of portfolio risk, and consider three approaches to estimate the influence
of a manager having Experience, an MBA degree, or a CFA certification.

12

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 Our findings clearly indicate that with respect to portfolio returns, there are no robust
differences in the return performance of equity portfolios that can be attributed to educational
qualification or level of experience. We are able to find weak evidence that supports the
conclusions of previous studies, but in order to do so we have to be very selective about the
manager classification method and the performance measure.

Considering all methods, we find that there is little statistically significant difference in
the return performance of equity portfolios that are managed by individuals with MBAs, CFAs,
or extensive industry Experience from those that are managed by individuals without any of
these qualifications. Once we look at all the evidence in aggregate, the lack of a discernable
return differential is clear.

With respect to portfolio risk, the results are even more interesting. First, Experience
tends to reduce portfolio Beta risk. Second, whether risk is measured by Beta or Tracking Error,
we find an important distinction between managers with MBAs and those with CFAs: we
consistently find that CFAs manage portfolios that have lower risk than portfolios managed by
MBAs, even though their respective portfolio returns are statistically indistinguishable.

The impact of education method on the portfolio’s risk is potentially a very interesting
result. One possible explanation is that our MBAs and CFAs are drawn from different
populations. Perhaps graduate programs in Business Schools somehow attract risk-lovers. Or
perhaps CFA’s are drawn to more risk-averse compensation schemes. What seems certain is that
others will have comments on our result.

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References
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of Political Economics,112, 1269-1295.

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Volatility, and Survival?” (SSRN).

Carhart, M. (1997). “On persistence in mutual fund performance”, Journal of Finance 52, 57-82.

Chevalier and Ellison (1999). "Are some Mutual Fund Managers better than others? Cross-
sectional patterns of behavior and performance", Journal of Finance, June 1999.

Fabozzi, J.,Frank., Sergio M. Focardi, and Caroline Jonas. (2008) Research Foundation of CFA
Institute Publications, Challenges in Quantitative Equity Management: 1-110.

Fama, E. and K. French (1993). "Common Risk Factors in the Returns on Stocks and Bonds,"
Journal of Financial Economics, 33 (1) 3-56.

Friis, L. B. and Smit, E. vd M., "Are some fund managers better than others? Manager
Characteristics and Fund Performance," South African Journal of Business Management
(September 2004); Vol. 35, No. 3; pp. 31-40.

Golec (1996) “The Effects of Mutual Fund Managers' Characteristics on their Portfolio
Performance, Risk and Fees”. Financial Services Review, 5(2), pp. 133-148.).

Gottesman and Morey (2006) "Manager education and mutual fund performance" Journal of
Empirical Finance, 13, pp. 145-182.

Jensen, M. C. (1968). “The performance of mutual funds in the period 1945-1964”, Journal of
Finance 23, 389-416.

Li, Haitao, Zhao, Rui and Zhang, Xiaoyan, Investing in Talents: Manager Characteristics and
Hedge Fund Performances (March 2008). Available at SSRN:
http://ssrn.com/abstract=1107050

Shukla and Singh (1994) "Are CFA charterholders better equity fund managers?" Financial
Analysts Journal, 6, pp.68-74.

Switzer and Huang (2007) "Management characteristics and the performance of small & mid-cap
mutual funds" (SSRN).

Wright, C. (2010) “Clearing the Bar: Are CFA charterholders superior performers?” CFA
Magazine, Jan/Feb 2010, pp. 22-25.

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 Table 1

Descriptive Statistics on Manager Qualifications and Portfolios

Panel A: Portfolio size and Key Portfolio Manager or any team member having CFA or
MBA Designations
Size MBA &
Size ($mill) MBAs CFAs MBAonly CFAonly CFA AnyCFA AnyMBA
Tertile Mean
1 61.6 26.7% 39.9% 7.4% 20.6% 19.3% 45.3% 31.8%
2 385.9 28.7% 40.2% 12.2% 23.7% 16.6% 47.5% 35.6%
3 2978.8 30.1% 39.9% 12.2% 22.0% 17.9% 44.9% 37.2%
ALL 1143 28.4% 40.0% 10.6% 22.2% 17.9% 45.8% 34.7%

Panel B: Descriptive Statistics on Portfolio Returns

Size Return Return Return FF Carhart
over over over Jensen
Tertile alpha alpha
Benchmark T-Bills SP500 alpha
1 0.037 0.441 0.062 0.006 -0.123 -0.096
2 0.045 0.431 0.062 0.002 -0.123 -0.088
3 0.032 0.425 0.06 0.017 -0.078 -0.063
ALL 0.029 0.431 0.061 0.008 -0.108 -0.082

Panel C: Risk and Performance Measures and portfolio style characteristics

Size
Tertile TE Beta Sharpe IR Growth Value Core
1 1.51 1.14 0.143 -0.005 39.50% 28.40% 16.90%
2 1.33 1.17 0.137 0.008 36.40% 28.20% 25.20%
3 1.18 1.12 0.148 0.016 38.20% 36.10% 17.20%
ALL 1.34 1.14 0.142 0.006 38.20% 30.90% 19.70%

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 Table 2

Positive (+) or negative (-) significant impact on Returns

RETURN MEASURES
Raw Return Risk-Adjusted Return

Fama-
Active Market Out- Jensen Carhart
French
Return performance alpha alpha
alpha
Panel A
CFA
MBA

KPMtenure -
with CFA
controls MBA

KPMtenure -
Panel B

CFAonly +
MBAonly +
MBA&CFA

KPMtenure --
with CFAonly

controls MBAonly +
MBA&CFA

KPMtenure -- -
Panel C
AnyCFA

AnyMBA +
with AnyCFA
controls AnyMBA
“+” indicates positive impact: “+ + +” significant at 1% level, “+ +” at 5%, “+” at 10%
“-” indicates negative impact: “- - -” significant at 1% level, “- -” at 5%, “-” at 10%

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 Table 3

Positive (+) or negative (-) significant impact on Risk

RISK MEASURES
Market Beta Tracking Error
Panel A

CFA ---
MBA ++
KPMtenure --
with CFA ---
controls MBA +++ +++
KPMtenure --

Panel B

CFAonly ---
MBAonly ++
MBA&CFA
KPMtenure

with CFAonly ---

controls MBAonly ++
MBA&CFA

KPMtenure --
Panel C

AnyCFA ---
AnyMBA + +++
with AnyCFA ---
controls AnyMBA +++ +++
“+” indicates positive impact: “+ + +” significant at 1% level, “+ +” at 5%, “+” at 10%
“-” indicates negative impact: “- - -” significant at 1% level, “- -” at 5%, “-” at 10%

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Appendix
Table A.1
Descriptive statistics about Benchmarks used
Benchmark* No. of Fund Years' % of Total
(out of total 2656)
90 Day U.S. TBill 22 0.8
DJ/Wilshire REIT 12 0.5
Domini 400 3 0.1
ML All US CNVRT 12 0.5
MSCI US REIT 6 0.2
MSCI USA 5 0.2
MSCI World 3 0.1
NAREIT 15 0.6
NASDAQ 8 0.3
RUS 1000 42 1.6
RUS 1000 Growth 385 14.5
RUS 1000 Value 302 11.4
RUS 2000 195 7.3
RUS 2000 Growth 247 9.3
RUS 2000 Value 149 5.6
RUS 2500 22 0.8
RUS 2500 Growth 43 1.6
RUS 2500 Value 37 1.4
RUS 3000 62 2.3
RUS 3000 Growth 56 2.1
RUS 3000 Value 39 1.5
RUS Mid Cap 49 1.8
RUS Mid Growth 170 6.4
RUS Mid Value 113 4.3
RUS Top 200 GR 5 0.2
S&P 400 Mid Cap 50 1.9
S&P 500 573 21.6
S&P 500 Growth 2 0.1
S&P 500 Value 6 0.2
S&P 600 Small Cap 17 0.6
S&P 600 Small Value 1 0
WILSHIRE 5000 5 0.2
*8.1% of Funds changed Benchmarks during 2005-2007.

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 Table A.2
Impact of control variables on performance models7
Excess Active Market Out-
return Return performance Jensen FamaFrench Carhart

Constant 0.42 0.031 0.029 0.006 -0.131 -0.101

-8.68 -0.72 -0.61 -0.14 (-2.83) (-2.32)

Growth 0.132 0.095 0.144 0.042 -0.057 -0.043

-3.31 -2.57 -3.63 -1.13 (-1.53) (-1.2)

Value 0.005 0.002 0.016 -0.017 -0.023 0.009

-0.13 -0.04 -0.43 (-0.48) (-0.62) -0.27

Core -0.034 -0.012 -0.019 -0.047 -0.075 -0.053

(-0.82) (-0.33) (-0.5) (-1.27) (-1.93) (-1.43)

Log(Size) -0.006 -0.005 -0.004 0 0.012 0.007

(-0.91) (-0.83) (-0.68) -0.02 -1.83 -1.25

R-square 0.04 0.02 0.05 0.01 0.01 0.01

Observations 886 886 886 872 872 872

7
We should note that while these R-squares may seem low, one must remember that these are cross-
sectional regressions where the left-hand side variables are regression intercepts generated after the underlying
risk model has been already estimated in a time series regression. The average R-squares from the time series
regressions which estimated the alphas are much higher; 99% were above 0.30, with the average R-squares for
the Jensen, Fama-French, and Carhart models being 0.71, 0.73 and 0.74 respectively.

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 Table A.3
Return metrics: All CFAs, MBAs
Active Market Jensen FF Carhart Active Market Jensen FF Carhart
Return Out- α α α Return Out- α α α
Electronic copy available at: https://ssrn.com/abstract=1661528

perform perform

CFA 0.007 .029 0.031 0.031 0.028 -.003 .016 .025 .033 .031
(0.3) (1.22) (1.38) (1.34) (1.22) (-0.12) (0.68) (1.12) (1.37) (1.37)
MBA 0.027 .02 0.008 0.009 0.018 .034 .030 .012 .003 .009
(1.07) (0.76) (0.29) (0.35) (0.69) (1.4) (1.13) (0.48) (0.12) (0.33)
KPMten -0.002 -.003** -.002 -.002 -.002 -.002 -.003** -.002 -.003* -.002
(-1.26) (-2.15) (-1.43) (-1.23) (-1.12) (-1.2) (-2.21) (-1.6) (-1.75) (-1.46)

Growth .091** .132 .040 -.061 -.048

(2.41) 3.3 (1.06) (-1.63) (-1.37)
Value -.017 -.006 -.037 -.043 -.010
(-0.47) (-0.17) (-1.0) (-1.15) (-0.29)
Core -.033 -.050 -.076** -.105*** -.083**
(-0.90) (-1.29) (-2.04) (-2.69) (-2.25)
Ln Size -.001 .002 .004 .015** .0105*
(-0.12) (0.35) (0.67) (2.26) (1.67)
Constant 0.043** 0.073*** 0.015 -0.10*** -0.079*** .027 .028 .008 -.119** -.095**
(1.82) (3.01) (0.67) (-4.03) (-3.37) (0.59) (0.56) (0.17) (-2.40) (-2.03)
Obs 798 798 783 783 783 794 794 781 781 781
R-squared 0.004 .01 0.006 0.005 0.005 0.03 .06 0.03 0.02 0.02
 Table A.4
Return metrics: CFAonly, MBAonly, Both CFA and MBA, and Experience
Active Market Out- Jensen α FF α Carhart Active Market Out- Jensen α FF α Carhart α
Return performance α Return performance
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CFAonly 0.032 0.048 0.039 0.034 0.029 0.017 0.028 0.030 0.035 0.034
(1.23) (1.76)* (1.48) (1.21) (1.12) (0.66) (1.03) (1.11) (1.21) (1.28)
MBAonly 0.071 0.054 0.021 0.013 0.021 0.071 0.051 0.020 0.006 0.014
(1.83)* (1.36) (0.58) (0.32) (0.57) (1.90)* (1.37) (0.56) (0.14) (0.37)
CFA&MBA 0.022 0.039 0.035 0.040 0.044 0.024 0.039 0.036 0.036 0.039
(0.70) (1.21) (1.11) (1.24) (1.42) (0.74) (1.22) (1.13) (1.10) (1.24)
KPM Tenure -0.002 -0.003 -0.002 -0.002 -0.002 -0.002 -0.003 -0.002 -0.003 -0.002
(-1.31) (-2.19)** (-1.44) (-1.23) (-1.12) (-1.22) (-2.22)** (-1.60) (-1.75)* (-1.46)

Growth 0.089 0.131 0.039 -0.061 -0.049

(2.39)** (3.29)*** (1.05) (-1.63_ (-1.38)
Value -0.016 -0.005 -0.027 -0.042 -0.009
(-0.43) (-0.14) (-0.99) (-1.14) (-0.28)
Core -0.033 -0.05 -0.076 -0.105 -0.083
(-0.91) (-1.29) (-2.04) (-2.69)*** (-2.25)**
Ln Size -0.001 0.002 0.004 0.015 0.104
(-0.18) (0.32) (0.66) (2.26)** (1.66)*
Constant 0.035 0.067 0.013 -0.102 -0.081 0.023 0.026 0.008 -0.119 -0.096
(1.49) (2.76)** (0.55) (-4.01)*** (-3.37)*** (0.50) (0.51) (0.15) (-2.39)** (-2.03)**
Observations 798 798 783 783 783 794 794 781 781 781
R-squared 0.01 0.01 0.01 0.01 0.01 0.04 0.06 0.03 0.02 0.02
 Table A.5
Return metrics: Any member of management team with a CFA or an MBA
Active Market Out- Jensen FF Carhart Active Market Out- Jensen FF Carhart
Return performance α α α Return performance α α α
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Any CFA -0.016 -.005 -0.006 -0.006 -0.006 -0.025 -.016 -0.009 -0.000 0.001
(-0.73) (-0.20) (-0.26) (-0.24) (-0.29) (-1.13) (-.72) (-0.41) (-0.04) (-0.03)
Any MBA 0.034 -.005 0.015 0.011 0.015 0.040 .039 0.018 0.004 0.006
(1.39) (1.25) (0.63) (0.42) (0.62) (1.65) (1.54) (0.72) (0.15) (0.26)

Growth 0.096 .145 0.043 -0.057 -0.043

(2.61)*** (3.65)*** (1.14) (-1.54) (-1.21)
Value -0.002 .012 -0.019 -0.023 0.009
(-0.07) (0.32) (-0.53) (-0.63) (0.25)
Core -0.010 -.018 -0.046 -0.075 -0.052
(-0.28) (-0.46) (-1.25) (-1.92)* (-1.43)
Ln Size -0.005 -.005 -0.000 0.012 0.007
(-0.90) (-0.75) (-0.00) (1.82)* (1.23)
Constant 0.034 .052 0.006 -0.109 -0.084 0.032 .026 0.006 -0.131 -0.102
(2.32)** (3.54)*** (0.44) (-7.41)*** (-6.10)*** (0.71) (0.54) (0.12) (-2.76)*** (-2.28)
Observations 890 890 874 874 874 886 886 872 872 872
R-squared 0.00 0.00 0.00 0.00 0.00 0.03 .05 0.01 0.01 0.01
 Table A.6
Risk metrics: CFA, MBA, Experience and Any team member with CFA or MBA

TE Jensen β TE Jensen β

Panel A: CFA, MBA, Experience

CFA -0.122*** -0.007 -0.142*** -0.024
(-2.72) (-0.33) (-3.32) (-1.23)
MBA 0.107** 0.035 0.129*** 0.052**
(2.20) (1.58) (2.85) (2.50)
KPM Tenure 0.001 -0.003** 0.004 -0.003**
(0.38) (-2.16) (1.62) (-2.08)

Growth 0.303*** 0.255***

(4.21) (6.12)
Value 0.005 0.061
(0.08) (1.53)
Core -0.202*** 0.083*
(-3.15) (1.95)
Ln Size -0.081*** -0.004
(-6.20) (-0.79)
Constant 1.335 1.161 1.689*** 1.054***
(27.89)*** (55.25)*** (18.16) (21.90)
Observations 798 783 794 781
R-squared 0.01 0.01 0.15 0.13

Panel B: Any member of management team with CFA or MBA

Any CFA -0.127*** 0.000 -0.166*** -0.017
(-2.83) (0.03) (-3.85) (-0.86)
Any MBA 0.159*** 0.041* 0.191*** 0.056***
(3.32) (1.92) (4.28) (2.72)

Growth 0.338*** 0.272***

(4.80) (6.72)
Value -0.017 0.066*
(-0.26) (1.71)
Core -0.213*** 0.090**
(-3.43) (2.18)
Ln Size -0.091*** -0.011**
(-6.54) (-2.27)
Constant 1.342 1.128 1.789*** 1.052***
(39.62)*** (80.97) (18.48) (21.83)
Observations 890 874 886 872
R-squared 0.01 0.01 0.18 0.15
Robust t statistics in parentheses
* Coefficient significant at 10%; ** significant at 5%; *** significant at 1%

23
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 Table A.7
Risk metrics: CFAonly, MBAonly, Both, and Experience
TE Jensen β TE Jensen β

CFAonly -0.137*** 0.019 -0.167*** -0.007

(-2.58) (0.78) (-3.22) (-0.29)
MBAonly 0.079 0.079** 0.089 0.081**
(1.04) (2.30) (1.26) (2.53)
CFA & MBA -0.007 0.015 -0.002 0.019
(-0.12) (0.59) (-0.03) (0.41)
KPM Tenure 0.001 -0.003 0.004 -0.003**
(0.39) (-2.20) (1.63) (-2.08)

Growth 0.305*** 0.253***

(4.21) (6.08)
Value 0.003 0.062
(0.05) (1.57)
Core -0.202*** 0.083*
(03.14) (1.95)
Ln Size -0.081*** -0.004
(-6.21) (-0.86)
Constant 1.339*** 1.153*** 1.694 1.105***
(27.41) (53.68) (18.11) (21.84)
Observations 798 783 794 781
R-squared 0.01 0.01 0.15 0.13
Robust t statistics in parentheses
* Coefficient significant at 10%; ** significant at 5%; *** significant at 1%

24
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