You are not experienced

Statistically speaking.

Pieria has some stats from Citywire on the tenure of fund managers in its database of 17,000 funds, judged to be one of the important factors that financial advisors say they consider when choosing funds for their clients.

The advisors averaged about two decades worth of experience. The fund managers, not so much.

Good to know that there are almost 200 managers out there who have been steering their funds since the early 90s.

Nick Kirrage sees in this some explanation for the tendency of most managers to hug whatever benchmark they are paid to track.

It is striking how steep the drop-off rate becomes over time, with under a fifth of fund managers surviving to celebrate their tenth anniversary. This has to play on some managers’ minds and may help to explain the index-hugging and consensus views so often seen in investment. Unfortunately, doing what is right by your investors is not always consistent with doing what might keep you in your job.

Indeed, clients don’t love contrarians, even when they ultimately turn out to be right. Rest in peace, Tony Dye.

What jumps out to us is the average tenure. For fund managers in this dataset it looks like the median length of time running a fund is around the five year mark. What might be surprising is that hedge funds tend to last last for about five years as well. One of the best studies that combed several hedge fund databases found that the average life for a fund which made it past its first year was 62 months — hence the huge number of dead funds.

Perhaps there is a natural five year life cycle to money management. Enthusiasm — performance — consolidation — boredom — hubris. Perhaps five years is just long enough to prove you have what it takes, or not, and failure or a better job beckons. Thoughts welcome in the comments.

Of course, such turnover would seem to make the job of picking managers to manage money just as hard as picking stocks or bonds. What’s the turnover like at investment consultants?

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