DISCUSSION PAPER PI-1609
Network Centrality and Delegated Investment Performance
Alberto G Rossi, David Blake, Allan Timmermann, Ian Tonks & Russ Wermers
We document a positive relation between network centrality and risk-adjusted performance in a delegated investment management setting. More connected managers take more portfolio risk and receive higher investor flows, consistent with these managers improving their ability to exploit investment opportunities through their network connections. Greater network connections are shown to be particularly important in reducing the diseconomies-of-scale for large managers who are well-connected. We also use the exogenous merger of two investment consultants, which creates a sudden change in the network connections of the managers they oversee, to provide evidence that
a greater number of connections translates into better portfolio performance.