Quirky Predictors of Hedge Fund Performance

In our previous blog post, we explored the core drivers of hedge fund performance—traditional factors like past returns, strategy choices, and market exposures. But what if some of the most intriguing predictors of hedge fund success have nothing to do with a fund’s investment strategy?

Recent academic research has uncovered a surprising array of unconventional, non-traditional factors that can influence hedge fund returns and investor behavior. These include characteristics you wouldn’t typically find in a fund prospectus—things like a manager’s ethnicity, gender, facial structure, fund name, and even political connections. While they may seem irrelevant at first glance, data-driven research shows they can have a measurable impact on both returns and investor decisions.

Let’s take a look at some of the quirkiest factors that may (or may not) help predict hedge fund performance.

1. The Alpha of Unattractiveness: When Looks Work Against You

We all know appearances shouldn’t matter in finance, yet research suggests that they do—just not in the way you’d expect. A study analyzing hedge fund managers’ facial features found that those deemed less conventionally attractive actually outperformed their better-looking counterparts.

The reason? Investors favor attractive managers, leading to greater inflows but weaker performance. The research suggests that because good-looking managers may have an easier time raising capital, they face less pressure to excel. Meanwhile, their less-photogenic peers must rely purely on results to succeed—and they deliver.

🔍 Key takeaway: If you’re evaluating a fund, don’t let a polished marketing photo influence your judgment. The “best-looking” hedge fund manager may not be the best-performing one.

📖 Reference: Bai, C., Tian, S., (2023). What Beauty Brings? Managers‘ Attractiveness and Fund Performance.

2. Does Your Fund Manager Have a Wide Face? You Might Want to Rethink That Investment

It sounds absurd, but a study found that hedge fund managers with wider faces (a high width-to-height facial ratio) performed significantly worse than their narrow-faced peers.

Why? The researchers suggest that facial width is linked to testosterone levels and aggressive behavior, traits that can lead to overconfidence, excessive risk-taking, and ultimately, underperformance. These “alpha-male” managers were more prone to holding onto losing positions and making risky bets that didn’t pay off.

🔍 Key takeaway: A hedge fund manager’s risk tolerance and decision-making style may be subtly reflected in their facial structure. While this doesn’t mean you should evaluate managers with a ruler, it does reinforce the idea that behavioral biases influence investment outcomes.

📖 Reference: Lu, Y., & Teo, M. (2021). Do Alpha Males Deliver Alpha? Facial Width-to-Height Ratio and Hedge Funds.

3. The “Invisible” Talent in Hedge Funds: Women and Minority Managers

Diversity in hedge fund management has long been a topic of discussion, but recent research confirms that investor biases create barriers for certain groups—despite strong performance.

• Hedge funds run by minority managers raise significantly less capital than their peers, yet they outperform non-minority funds on average.
• Female-managed hedge funds struggle to attract capital but tend to be more disciplined, with lower risk exposure. Surviving female-managed funds outperform male-led ones but manage fewer assets and get less attention—suggesting that while they may face greater challenges, those who persist are exceptionally skilled.

🔍 Key takeaway: Investors may be overlooking high-quality funds due to unconscious biases. Allocating capital based on skill rather than perception could lead to better results.

📖 Reference: Aggarwal R., Boyson, N. (2016). The Performance of Female Hedge Fund Managers

4. Fund Names Matter (But Not in the Way You Think)

Would you be more inclined to invest in “Titan Global Alpha Fund” or “Smith & Partners Value Fund”? According to research, hedge funds with grandiose, authoritative names attract more money upfront but deliver worse returns..

Funds with “gravitas-laden” names often underperform and are more likely to shut down. The reason? Many of these funds rely more on marketing than substance, using impressive names to mask mediocre strategies.

On the other hand, eponymous funds—those named after their founder (e.g., “John Doe Capital”)—are often more cautious and less prone to fraud, as the manager’s personal reputation is on the line.

🔍 Key takeaway: A fancy fund name may signal marketing hype rather than real alpha. Investors should look past branding and focus on the actual strategy and track record.

📖 Reference: Joenväärä, J., & Tiu, C. (2017). Raising Capital from Not-So-Sophisticated Investors: Hedge Fund Flows to Name Gravitas.

5. Strategic Charity: When Fund Managers Donate at Convenient Times

Hedge fund managers are known for making headline-grabbing charitable donations, but research shows these donations often serve a strategic purpose.

Data on thousands of hedge fund manager donations revealed a clear pattern: managers were far more likely to give to charity right after periods of bad performance. Why? Because donations helped soften investor concerns and stem capital outflows.

🔍 Key takeaway: Philanthropy is great—but if a fund manager suddenly starts making big donations, it’s worth checking whether it coincides with a rough performance streak.

📖 Reference: Agarwal, V., Lu, Y., & Ray, S. (2021). Are Hedge Fund Managers‘ Charitable Donations Strategic?

6. Political Connections: An Edge or a Regulatory Risk?

Do hedge fund managers with political connections have an advantage? Research suggests they do—but not necessarily for reasons investors would like. A study analyzing hedge funds from 1999 to 2012 found that funds with lobbyist connections significantly outperformed passive benchmarks—by 56 to 93 basis points per month—on stocks influenced by government decisions. The likely reason? Access to private political information, allowing them to trade ahead of regulatory shifts.

But this edge didn’t last forever. When the STOCK Act—designed to curb insider political trading—became law, the outperformance of politically connected hedge funds dropped significantly. This suggests that much of their success wasn’t based on superior investment skill but rather on privileged access to policy insights.

🔍 Key takeaway: Political ties can give hedge funds a temporary edge, but when regulations change, so does their ability to capitalize on it. Investors should consider whether a fund’s success is built on lasting skill or fading political access.

📖 Reference: Gao, M., Huang, J. (2016). Capitalizing on Capitol Hill: Informed trading by hedge fund managers.

Conclusion: When It Comes to Hedge Funds, First Impressions Can Be Misleading

The hedge fund industry is full of subtle signals and hidden biases. Many investors unknowingly gravitate toward charismatic managers, impressive fund names, or high-profile philanthropists, but research suggests these factors often have little connection to actual performance—or worse, signal underperformance.

Meanwhile, overlooked managers—whether due to appearance, background, or fund branding—may actually be the strongest performers. The key takeaway? True alpha lies where others aren’t looking.

At Resonanz Capital, we believe in an evidence-based approach to hedge fund selection. By cutting through noise and focusing on actual skill, risk discipline, and structural advantages, investors can make better decisions and avoid common behavioral pitfalls.

💡 What do you think? Have you ever been drawn to a hedge fund for reasons that, in hindsight, weren’t tied to performance? Let us know!