A new study titled "The Small World of Investing: Board Connections And Mutual Fund Returns", distributed by the National Bureau of Economic Research, suggest that old-school ties play a part in the world of mutual funds and hedge funds investing and profitability.
The study states that mutual fund managers invest more money in companies that are run by people with whom they went to college or graduate school compared to companies whom they have no such connections. Investments involving school ties, on average, also do much better than other investments.
“It’s a very good paper,” said Michael S. Weisbach, a finance professor at the University of Illinois. “It suggests that there is illegal activity going on, but it doesn’t provide the S.E.C. a road map. You certainly can’t prosecute someone for having a good return on a company by somebody they went to college with.”
“Something about these social networks is allowing portfolio managers to better predict the future returns of companies within the network,” said Lauren Cohen of Yale, another author.