Using rich data on familial background of US mutual fund managers, this paper sheds light on the formation of risk preferences by investigating birth order effects. Consistent with sensation-seeking behavior, we find that managers who are born later in the sibling hierarchy take more risks but perform worse relative to lower-birth-order managers. Later-born managers take more extreme style bets, hold more lottery stocks, churn their portfolios more, and engage in more civil and regulatory violations. These birth-order effects are more pronounced when parental resources are limited and age spacing is lower between siblings, suggesting sibling rivalry as a potential mechanism.

We study whether hedge funds make charitable donations to further their business interests. We find that donations are driven by poor fund flows and performance. Post-donation, donor funds experience lower outflows compared to matched non-donors. One-off donations and donations to charities which hold fundraising events catering to the hedge fund community are more likely to mitigate outflows after poor performance. These findings are consistent with strategic motivations driving at least some donations. While the economics of donations initially appear quite favorable to the hedge funds, the benefits from donations are not scalable. Moreover, investors punish donors through greater redemptions if poor performance persists post-donation.