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Should you back unattractive or attractive fund managers?

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VentureSouth Team
Last updated: June 21, 2024
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Being good-looking brings many advantages in life, as you well know. It turns out, though, that being a better angel investment fund manager might not be one of them. That’s the critical subject we are examining today!

Today’s SSRN paper is perhaps the most important paper we’ll look at: What Beauty Brings? Managers’ Attractiveness and Fund Performance by Chengyu Bai and Shiwen Tian. Available here if (somehow) you haven’t downloaded this one already.

Bai and Tian examine the relationship between stock fund managers’ facial attractiveness, fund flows, and performance outcomes. Using a combination of machine-learning to categorize facial attractiveness, photos of Chinese mutual fund managers, and the performance information of those funds, the authors answer the crucial question: are attractive fund managers better at managing funds?

The first finding is that “good-looking managers have advantages in attracting fund flows” (p.14) – they raise more money. This probably is not surprising, as there’s plenty of literature around that show the advantages of being attractive, tall, etc., that all of us who are…less so…will recognize.

The second finding is perhaps more interesting: “The results also show that the funds with low facial attractiveness scores outperform funds with high facial attractiveness scores.” (p.10). Less attractive fund managers generate better returns!

This paper is not looking specifically at early stage companies or VC funds. Do we think the results would translate to angel investing?  As fund managers for the VentureSouth Angel Funds, we…um…hope so? 😊 Unfortunately, on the most obvious criteria – fund size – the evidence suggests the result probably does not translate, as the results do not appear to be statistically significant for small funds (p.10), which is what angel and early stage VC funds generally are.

Normally we pick a few nuggets of interest to highlight, but this article is packed full of them (at least to us). The related literature in this field is intriguing. Managers from higher-SAT undergraduate institutions (p.4), poor-born individuals, people with thin faces, and people born just after the end-of-school-year cutoff and so are older than their peers (p.5) create higher returns. How much would that translate into VC/angels, and to entrepreneurs? Should we prioritize poor, thin-faced, entrepreneurs born in October? Do we fire baby-cheeks Charlie? Or do we fire born-in-August Matt?

This applies only to male fund managers: higher facial attractiveness score has significantly negative impact on fund performance for men, but there is no significant performance difference for female managers (p.13). Why?

Diversification is critical in early-stage investing because stock-picking is so hard. “We find significant evidence that good-looking managers hold a greater number of stocks in their portfolios and their portfolios are more diversified.” (p.18). In the article, this is considered a negative for the mutual fund space; it would be a benefit in the angel world?

We’ve published before about things you might consider when evaluating early stage investment firms and fund managers (here, for example). We did not include facial attraction. Perhaps we should have?!