Fund manager performance – the proof

I wrote here a few weeks ago that being a fund manager is more about luck than about skill – and that even if there are managers out there whose returns are the result of genius rather than right-time-right-place luck, it would be impossible to distinguish them from those living a life of non-stop luck.

That made a few people (mostly fund managers I would guess) cross. But I was also lucky enough to get an email from a charming Swiss professor, Jérôme L Kreuser of the RisKontrol Group, who said that not only was I right, but that he could prove it.

He attached a paper written by some of his colleagues, Lester Seigel and Ramasastry Ambarish, which has a go at quantifying just how long it takes to distinguish manager skill from manager luck in the equity markets.

The answer? Up to 175 years. If they are right, then we will never know if anyone (including Anthony Bolton, Neil Woodford and Warren Buffett) is for real or not.

As noted in the FT, “With volatile assets like equities, the reality is that you would need hundreds of years of data to be sure [that one manager’s performance is better than the other].”

Some of you have asked to see the paper, so the point of this post is to show it to you. Read it here: Time is the Essence