Poker-Playing Hedge Fund Managers Have an Edge

Do poker players make good hedge fund managers? On one hand, there’s skill overlap. Both activities demand aggressiveness, accurate calculations under pressure, keen behavioral insight and shrewd risk-taking. On the other hand, poker seems like a risk-seeking activity, suggesting reckless and overconfident managers. Poker requires deception and gamblers are often considered untrustworthy. Also, time spent learning and playing poker is time taken away from investing.

Academics Yan Lu, Sandra Mortal and Sugata Ray try to answer the question in a new paper titled “Hedge Fund Hold’em.” This is part of an emerging academic interest in correlating recreational activity to business and investing success. The most famous paper in the field found that hedge fund managers who own powerful sports cars have the same average returns as managers who own everyday cars or take the bus, but take more risk, so they have lower Sharpe ratios and less alpha. Studies have shown that chief executive officers who play a lot of golf and win awards tend to deliver lower performance, presumably due to the distraction from business.