Experience Is Wealth: Does Work Experience in Other Professions Matter to Mutual Fund Managers’ Portfolio Decisions?

We document that, among stocks held in mutual fund portfolios, fund managers tend to invest more heavily in firms for which they have prior professional experience in the form of working for sell-side analysts, audit firms, and underwriters in capacities where they could learn about companies that may belong to their portfolios when they later become fund managers. Cross-sectional results reveal that the impact of this professional experience intensifies when the work experience is less distant and lasts for longer, when the firm suffers more severe agency problems and worse information asymmetry, and when the fund manager has more power. Additionally, we observe that fund managers trade on stocks of firms for which they have relevant professional experience prior to upcoming earnings news, and this trading activity leads to superior returns to their funds. Finally, we document empirical patterns consistent with both knowledge acquisition and professional connections from prior work experience contributing to our evidence.