Inherited Agglomeration Effects in Hedge Fund Spawns

This paper studies inherited agglomeration effects, which we define as human capital that managers acquire while working in an industry hub that may be transferred to a spinoff. We test for inherited agglomeration effects in the hedge fund industry and find that hedge fund managers who previously worked in New York and London outperform their peers by about one percent per year. The results are driven by managers who worked in investment management positions previously, and are at least as large as traditional agglomeration effects that arise from being located in an industry hub contemporaneously. The evidence suggests that inherited agglomeration effects are an important, but as yet overlooked, factor influencing the performance of new firms.