Fund Managers' Institutional Background and the Birth of Investment Management Companies

This paper presents new evidence on the origins of investment management companies. Specifically, we examine the characteristics and nature of those "parent" fund companies from which at least one of their key fund manager personnel departed to establish their own independent firms. Covering the period 1980 and 2003, we create a unique hand-collected database of money management firm founders and their "parents." We find that larger, more reputable and more diversified firms with a significant presence in growth-oriented investment objectives are more likely to produce start-ups. Coming from larger companies increases the time it takes for a start-up to attain significant assets under management. Fund managers with experience in more diversified firms and those that are dominated by growth funds experience shorter time to "significant" assets. Locating a start-up geographically closer to a founder's previous employer results in a faster time to market. An analysis of the similarities between parent and start-ups' stock holdings shows that there is almost double the commonality of stocks held, than previously documented for competing mutual funds. The main driver of commonality in stock selection is the number of founders coming from a single parent firm.