Apparently the name a hedge fund gives itself has a direct bearing on both the inflow of capital and by extension the level of fees they generate from those inflows. It seems that having a name that lends gravitas and sounds somewhat regal (wanky) adds some $250,000 to the inflows. But funds with such names generate lower performance. The abstract below tells you all you really need to know.
Abstract
We document that investors allocate more flows to hedge funds whose names exhibit gravitas – defined as a combination of words from geopolitics and economics, or suggesting power. The economic effects are relatively large: averaging across our models, adding one more word with gravitas to the name of the average fund brings more than a quarter million dollars more in annual flows. We also document that having a name with gravitas is associated with abnormal negative performance: high name gravitas funds have lower returns, alphas, Sharpe ratios and manipulation-proof performance measures, higher volatilities and maximum drawdowns as well as higher probabilities of extinction than the funds with lower name gravitas. Although we find evidence that investors learn about the true investment abilities of their funds and respond less to gravitas as they do so, the chasing gravitas behavior survives all these controls. From the point of view of hedge fund managers, we document that funds with more name gravitas report to fewer databases, suggesting that giving the fund a “good” name serves as an alternative form of marketing. Finally, we show that our results are robust to a generous battery of additional tests, including corrections for potential endogeneity issues or for whether the fund only accepts qualified investors.
If so motivated you can find the full publication here.
PS: One of the things the did surprise me was that one of the authors makes their home at Imperial College Business School Centre for Hedge Fund Studies. Which does raise the question – how much time can you spend studying failure?
