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.