When managers of hedge funds get divorced or married, it’s bad news for their investors. Their asset returns are likely to suffer. Worse still, the pain could last years.  That is the conclusion from a working research paper by academics at the University of Florida and Singapore Management University.  While the general news—that either event is distracting enough to lower job performance—might seem obvious, the paper goes further by answering the important questions: How much do investment returns suffer, and over what period? In short, returns get hit a lot, and the dip is long.  “We find that money managers significantly underperform during a divorce,” states the paper, “Limited Attention, Marital Events, and Hedge Funds,” by Yan Lu,Sugata Ray and Melvyn Teo. “The distraction induced by a marriage has a similar effect.”  It is a notion famously raised by hedge-fund investor Paul Tudor Jones in 2013, when he said that one can “automatically subtract 10 to 20 percent from any [hedge-fund] manager if he is going through divorce.” The study reprints his quote in the introduction. Representatives of Mr. Jones had no comment.  For the six-month period surrounding a fund manager’s divorce (three months before and three after) the paper states, performance will lag behind by an annualized 4.3 percentage points versus performance in the period before the divorce. For two years after that event, performance will lag behind by 2.3 percentage points a year when adjusted for risk.  Marriage is little happier for the investors. Managers underperform by an annualized 3.1 percentage points for the period three months before and three months after the wedding. It gets slightly worse after that. They underperform for 24 months after the wedding by 3.2 percentage points a year, when adjusted for risk.  According to Ms. Lu, the researchers plan to seek publication of their study within the next several months. They collected fund-return records from 1994 through 2012 from multiple sources: TASS, Morningstar, HFR and BarclayHedge databases. That data was combined with marriage and divorce data from the 13 states that disclose the information publicly (Arizona, California, Colorado, Connecticut, Florida, Georgia, Kentucky, Nevada, North Carolina, Ohio, Pennsylvania, Texas and Virginia).  That resulted in a sample size of 98 marriages and 76 divorces of hedge-fund managers in the study period.  The relative paucity of nuptials information highlights a possible flaw in the analysis, and not just because it’s hard to draw airtight conclusions from small samples. The records information excludes New York City, the largest financial center in the world and home to many hedge-fund managers. Similarly, New Jersey is excluded, and Massachusetts, home to Boston—a financial center in its own right—isn’t in the data either.  On its own, the geographic mix isn’t a problem. But it may be if the people who work in those cities have different at-work reactions to either event than in other parts of the U.S.  Still, the data are meaningful enough to warrant further study. (The authors hope to extend their work to mutual funds and to private-equity funds.) Meanwhile, what’s a prudent hedge-fund investor to do? It would seem that marriage and divorce are just a fact of life. So there may be little recourse, unless you can find a team of celibate monastics to manage your money.  Mr. Constable is the host of the News Hub show at WSJ Live online. Email him at simon.constable@wsj.com.
A recent study finds that hedge-fund performance suffers when the fund manager either marries or gets a divorce.