Money market mastermind decodes industry secrets

Money market mastermind decodes industry secrets

Ranadeb Chaudhuri, Ph.D. gesturing with his hands
Ranadeb Chaudhuri, PhD

The asset management industry directs the investment of $71 trillion worldwide. By 2020, managing other people’s money is projected to become a $100-trillion business. But who is managing the managers?

Oakland University associate professor of finance Ranadeb Chaudhuri, Ph.D., is poised to become one of the industry’s leading watchdogs, shedding insight on some of the mysteries of money managers — particularly those at institutional asset management firms.

Dr. Chaudhuri’s background includes research on investments, derivatives and corporate finance. His current area of research illustrates how money managers’ academic qualifications matter in the asset management industry.

Key Takeaways

Asset managers cross-subsidize funds, creating star performers at the expense of other funds in the same family, often benefiting the firm more than the investor.

The performance record of institutional asset managers with Ph.D.s is better than those without.

Talent trumps training when it comes to the success of Ph.D. money managers. Innate ability matters more than field-specific training among asset managers holding a doctorate degree. 

In a recent study Dr. Chaudhuri found that the performance of investment products managed by firms where asset managers hold Ph.D.s is superior to that of products managed by similar firms that do not hire Ph.D.s. However, talent trumps training when it comes to the success of Ph.D. money managers. Innate ability matters more than field specific training among asset managers holding a doctorate degree. This study was coauthored with professor Zoran Ivković of Michigan State University, professor Joshua Pollet of the University of Illinois and professor Charles Trzcinka of Indiana University.

Another study examines how money management firms subsidize higher-value funds at the expense of lower-value funds of the same firm. It suggests that finding a superior investment option means not only identifying a talented manager, but also a setting in which the institutional asset management firm is willing to enhance product performance by cross-subsidizing it.

When asset managers across the country began reaching out to him to inquire more about his work, Dr. Chaudhuri says he knew he was making an impact in the finance industry.

“The guiding premise throughout my current work and my future research agenda is to explore novel empirical facts and to develop structural and/or theoretical models to explain these results,” he says.

Dr. Ranadeb Chaudhuri, associate professor of finance, joined the Oakland University School of Business Administration in 2009. He has a strong quantitative background that includes an undergraduate and master’s degree in mathematics from the Indian Institute of Technology in Kharagpur, India. He earned a master’s degree in mathematics specializing in computational finance at Purdue University. He followed that with a doctorate degree in finance from Michigan State University. Dr. Chaudhuri is known on campus as an expert in asset pricing. He is also the founding faculty supervisor to the OU Student Managed Investment Fund powered by The Kresge Foundation.

The Review of Financial Studies Chaudhuri, R., Ivkovic´ , Z., & Trzcinka, C., (2017). Cross-subsidization in institutional asset management firms, 60.