All evidence points to the fact that appearance should not matter in hedge fund decisions by investors. (Shutterstock.com)
All evidence points to the fact that appearance should not matter in hedge fund decisions by investors. (Shutterstock.com)

First impressions are important but a new study of the business sector has found a good first impression does not necessarily lead to investment success.

According to a study by Dr. Roy Zuckerman of Tel Aviv University’s Faculty of Management, hedge-fund managers who appear “trustworthy” in photographs attract more clients than their more “undependable” looking counterparts. But their clients also saw lower returns on their investments.

The study found that the managers characterized as “less trustworthy” by the survey in fact performed much better than their “upright” colleagues.

“When hedge funds begin to perform poorly, people are less likely to pull out their investments if their managers appear trustworthy,” said Dr. Zuckerman. “But this just should not be the case. All evidence points to the fact that appearance should not matter in hedge fund decisions by investors. Unfortunately, in this study we found that it does.”

The research used dozens of publicly available photographs of hedge-fund managers found on Google. The pictures were rated for personal characteristics, such as age and attractiveness, by a group of 25-30 subjects in an online survey platform. As part of the survey, respondents were also asked to rate the trustworthiness of the managers on a scale of 1 to 10 based only on their photographs.

“Using this measure of trustworthiness, we attempted to answer two questions: whether perceived manager trustworthiness had an effect on investors’ behavior, and whether this effect was rational, i.e., was supported by results,” said Dr. Zuckerman.

According to Dr. Zuckerman, investors should avoid the simple mistake of buying into the physical appearance of hedge-fund managers.

“There is no evidence to suggest that perceived trustworthiness predicts actual managerial skill. On the contrary, we found that the ‘trustworthy’ managers tended to make less money for investors and more money for themselves by leveraging the way they looked and how they presented themselves. ‘Untrustworthy’ execs were found to charge lower fees and generate more income for investors and less for themselves,” he said.

The research was conducted in collaboration with Dr. Ankur Pareek of Rutgers University and published in Social Science Research Network.