Existing research argues that many target date funds feature excessive fees and suboptimal allocation choices, and that investors could achieve superior outcomes by self-directing their retirement accounts. This paper provides evidence that a first-order benefit of target date funds is their impact on investor behavior. Participants in a laboratory experiment are less likely to eliminate equity allocations following a stock market crash when they are invested in a target date fund. In a carefully calibrated simulation exercise, this behavioral benefit of target date funds provides significant increases in welfare even with economically meaningful fees and distorted glide paths.

Mutual funds face the risk of withdrawals if they perform poorly in the short term, which encourages manager myopia. We show that fund families can insulate managers from this funding pressure via compensation tied to long-term fund performance. Managers with long-horizon contracts are more likely to undertake long-term investments and outperform their constrained peers. Since long-horizon pay does not shut off the funding pressure but simply insulates the manager from it, not all families can offer these contracts. Long-horizon contracts are more prevalent in families that cater to patient investors and have more resources to buffer liquidity shocks.

Using confidential administrative data from the U.S. Census Bureau, we examine

whether race and gender affect compensation and career outcomes in the U.S. asset management industry. We document substantial compensation gaps: female portfolio managers earn 27% less than male peers, and minority managers earn 20% less than White peers. Female and minority managers also face significantly higher rates of forced turnover, and female managers are less likely to be rehired following job separations. These gaps can not be explained by differences in qualifications: minority managers are more likely to attend elite schools and hold advanced degrees. Nor do they reflect differences in performance: we find no systematic disparities in investment performance or in the ability to attract investor flows. Importantly, we show that greater diversity among asset management firm owners helps mitigate these disparities. Together, these findings challenge the notion that meritocratic industries are immune to discrimination and raise concerns about taste-based discrimination and potential talent misallocation in an industry central to capital markets.

This paper constructs the first comprehensive database of U.S. diverse-owned hedge fund managers by leveraging image recognition technology alongside extensive manual verification. Our analysis reveals that, as of the end of 2022, only 1.1% of U.S. hedge fund industry assets are managed by firms owned by women or historically under-represented racial/ethnic minorities. These firms appear to encounter significant barriers to raising capital, expanding their asset base, and winning mandates from large asset owners, challenges that persist after social movements such as Black Lives Matter and the MeToo campaign. At the employee level, hedge funds show under-representation of Blacks and Hispanics, and women in senior and investment roles relative to both the U.S. labor force and the financial services industry. Promotion rates for these groups also lag behind those of their White, male counterparts. Women are more often hired into non-investment positions like investor relations and compliance than into investment positions, but minority-owned firms tend to employ more minority professionals. Despite external pressures on, and stated internal efforts by, the asset management industry to increase diversity of ownership and investment teams, our findings suggest that there has been no material change.

Does political partisanship shape the investment performance of professional fund managers? We find that hedge funds that hold stocks that are strongly aligned with the incumbent president's economic policies underperform funds that hold stocks that are poorly aligned with the incumbent president's economic policies by 4.44% per year after adjusting for risk. In line with a partisanship bias story, our findings are driven by managers who are politically aligned with the incumbent president and stronger when (a) fund managers are highly partisan, (b) sentiment diverges between Democrats and Republicans, and (c) conflicts occur between the President and US Congress. Following exogenous shocks that heighten partisan bias such as mass shootings and political protests, politically aligned funds increase their exposures to politically aligned stocks, leading to greater underperformance. Our results extend to mutual funds and suggest that political partisanship can be detrimental for investment management.

Using dealer surveys and hedge fund regulatory filings, we study how prime brokers' credit supply affects hedge fund performance. Hedge funds with more access to credit from their prime brokers subsequently increase borrowing and generate higher returns and alphas. This effect is stronger for funds relying on fewer prime brokers and those using borrowing rather than derivatives for leverage. Credit supply is particularly impactful during market stress and when arbitrage opportunities are abundant. Prime brokers allocate credit based on hedge funds' profit potential. Our findings support models of leverage constraints where less constrained investors hold higher-alpha portfolios and use leverage to amplify returns. Our findings also explain return co-movement among hedge funds sharing a prime broker and the outperformance of large funds with diverse credit sources.

We study how changes in third-party relative performance evaluation (RPE) shapes mutual-fund managers’ incentives. Exploiting Morningstar’s 2002 shift from a single U.S. equity peer group to size–style categories and its 2016 introduction of ESG Globe ratings, we show that incomplete benchmarking disadvantaged certain funds and induced risk-taking. Pre-2002, growth funds received lower star ratings and held higher-beta, more volatile portfolios—especially when the value spread was large. Similarly, before the globe rating introduction, ESG funds held higher risk stocks with lower ESG ratings. These higher risk holding effects disappear after both the 2002 and 2016 Morningstar reclassification events.