The key to creating an insanely lucrative hedge fund may be less in the investment strategy, and more in the name of the fund, according to research from Juha Joenvaara and Cristian Ioan Tiu.
The authors find an interesting correlation between the level of “gravitas” of a fund’s name, and the amount of money the fund annually earns. Essentially, it works out that the more “alpha” the name of the hedge fund, the more money the fund brought in annually. A more weighty-sounding name could increase a fund’s annual revenue by around $227,120 a year.
Companies spend a great deal of time and money picking the perfect name, as the names themselves are a way of marketing. Joenvaara and Tiu found investors put more money behind hedge funds whose names exhibit “gravitas,” a word that suggests power.
“Investors allocate more flows to hedge funds whose names exhibit gravitas — defined as a combination of words from geopolitics and economics, or suggesting power,” Joenvaara and Tiu wrote. “These words are usually associated with weight, influence, authority, seriousness and good judgement.”
Having an “alpha,” high-gravitas name may, however, have some diminishing returns. Hedge funds carrying names with higher levels of gravitas tend to overcharge and underperform, the authors report. Yet, funds that chose less alpha names reported higher levels of investment volatility and failed about 5 percent more often than funds with high-gravitas names.
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