Choosing Investment Managers Poorly?

Do sophisticated investors choose investment managers wisely? In their July 2020 paper entitled “Choosing Investment Managers”, Amit Goyal, Sunil Wahal and Deniz Yavuz investigate how institutional investors select investment managers for public equity and fixed income portfolios. For each actual selection, they construct a group of non-selected investment managers competing in the same geographic region, style and year (average 94 for equity and 72 for fixed income). They focus on two selection criteria:

1. Investment manager past performance (returns and assets under management for each product offered as collected by eVestment).
2. Relationships among institutional investors, investment managers and consultants (as collected by Relationship Science).

Using 6,939 investment manager selections (5,005 equity and 1,934 fixed income) by 2,005 global institutions delegating over $1.6 trillion in assets to 775 unique managers during 2002 through 2017, they find that:

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