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Strong bloodlines can only help your chances of killing it on Wall Street, says rat study

Rat

When it comes to launching your own hedge fund, it’s all about pedigree. Institutional and private investors give tens of millions of dollars to freshly launched hedge funds because of the name, reputation and track record of the people behind them. Or, in some cases, they do it because of the name, reputation and track record of their father.

The Wall Street Journal just came out with an interesting piece on a newish trend concerning the young offspring of Wall Street titans, who are starting launching their own hedge funds very early in their career – and successfully raising capital. An unknown portion of money, as you might imagine, comes from their parents.

The latest examples involve the sons of billionaire investors Howard Marks and Ken Moelis, who are each prepping to launch their own funds over the next six months, despite being in their 20s, according to the report.

Now that is not to say they have no experience. But it’s limited. Marks graduated from the University of Pennsylvania – the top ranked school for Wall Streeters – in 2009, and then took a job at hedge fund Blue Ridge Capital. Moelis was in Marks’ class at UPenn but stuck around to get his MBA. He worked at Serengeti Asset Management until earlier this year.

And it appears the duo plan on doing more than just investing their own cash. Marks reportedly told industry execs that he expects to raise as much as $200 million from his father and other family and friends, according to the Journal. No word yet on Moelis’ fundraising goal, but dad will only be an investor. He won’t have any ownership stake.

While we’ll have to wait to be certain if strong bloodlines and a quality education will make up for limited experience, nature tells us that it just may. Preliminary results of a new study involving rats suggest that good traders tend to bear similarly-gifted offspring.

In the study, authored by Michael Marcovici, rats were trained to press red or green “buy” and “sell” signals based on the sound of ticker tape movements in staged foreign exchange and commodity futures markets, according to a blog post on The Enlightened Economist. If they made the right call, they were fed. The wrong call resulted in a mild electric shock. The rats “outperformed some of the world’s leading human fund managers,” according to Marcovici, which is kind of sad.

But fear not. The best performers were then bred. Their offspring outperformed the first generation. So, if the rats have anything to say about it, young Marks and Moelis are going to be just fine.

(h/t to Matt Levine for the blog link)

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