An investigation of the relationship between hedge fund returns and the academic credentials of their managers’ colleges nudged me to muse about a related study for law departments. As reported by the NY Times Mark Hulbert a few months ago, academics compared the performance of about a 1,000 of hedge funds in light of the average SAT score of the college attended by the fund’s lead manager. The study found “a strong positive relation” between a hedge fund’s performance and the average SAT score at its manager’s school, even on a risk-adjusted basis.
What if someone collected data on total legal spending as a percentage of industry (TLS/Rev) and normalized it by industry (See my post of Aug. 28, 2008: how to correct TLS/Rev across industries.). That person could then blend in the average LSAT score of the law schools attended by the general counsel of those departments and see whether there is any correlation to TLS/Rev (See my post of Nov. 14, 2005: LSAT scores have been on the decline.). My hunch is that general counsel who graduated more exclusive law schools will turn in better performances.
The article speculates that “managers who attended more-elite institutions had better contacts in the business and investment areas,” but thought better networking was a minor contributor to the delta in fund earnings. No, the dominant reason, concluded the researchers, is “the superior talents and higher intelligence levels of the average student at the higher-SAT institutions.” Brains will out.