What's in a name? Fund managers with "foreign sounding" names have 10 per cent less cash

Jessica Morris
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"In group" bias works against funds whose managers have foreign sounding names (Source: Getty)

Fund managers with foreign-sounding names experience up to 10 per cent less fund flows than their peers who have typical American names, even when their performance is the same.

That's according to new research - snappily titled "What's in a name? Mutual fund flows when managers have foreign-sounding names" - due to be published later this year by a group of academics from three universities.

"Flows in funds managed by individuals with foreign-sounding names are around 10 percentage points lower, compared with funds managed by individuals with typical American names," the study said.

The report estimates bias towards funds whose managers have foreign sounding names leads to about $133,386 being lost in annual fees, however it stressed that this was a rough figure and should be interpreted with caution.

The study looked at real life funds, and the academics obtained the names of all fund managers who managed active US equity funds between 1993 and 2011. They then asked a random sample of 150 US citizens to evaluate which names sounded "foreign."

The industry is well-suited to this kind of study, which looks for evidence of social bias, because fund managers' performances can be objectively assessed by the returns they make on money invested on behalf of their clients.

It found investor discrimination against fund managers with foreign sounding names was actually heightened by events such as the 9/11 terrorist attacks, and the Boston marathon bombs.

"Following the 9/11 terrorist attacks, fund managers with Middle-Eastern and South-Asian sounding names experience a drop in fund flows relative to other managers with foreign-sound names," the research said.

The report blamed the trend on "in group bias", or when people are wary of people who are different to them.

"People systematically adopt favorable opinions about members of their own group and might be indifferent or have lower opinions about members who are outside of their group," it said.

"As a result, out-of-group individuals may be trusted less, could undergo closer scrutiny, and may even experience some form of discrimination."

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