We show that fund families allocate their most skilled managers to market segments in which manager skill is rewarded best. In efficient markets, even skilled managers cannot generate excess returns. In less efficient markets, skilled managers can exploit inefficiencies and generate higher performance than unskilled managers. Fund families seem to be aware of the relation between skill, efficiency, and performance, and allocate more skilled managers to inefficient markets. They pursue this strategy when hiring new fund managers and when reassigning managers to funds within the family. Overall, we conclude that fund families allocate fund managers in an efficient way.