Many US states have a single cutoff date for school entry, meaning that some children are older than others when they begin kindergarten. We show that this variation in birth months is associated with differences in adult labor market outcomes in the mutual fund industry. Relatively older managers (i.e., those born just after the cutoff) make better stock selections, and their funds outperform their younger peers’ funds by 0.48% per annum. This difference is linked to increased confidence. Survey respondents judge relatively older managers as appearing more confident in photographs, and these managers display more confident behavior: making larger bets, window dressing their holdings less, and securing more fund flows conditional on performance.

ABSTRACT We study compensation contracts of individual portfolio managers using hand‐collected data of over 4,500 U.S. mutual funds. Variations in the compensation structures are broadly consistent with an optimal contracting equilibrium. The likelihood of explicit performance‐based incentives is positively correlated with the intensity of agency conflicts, as proxied by the advisor's clientele dispersion, its affiliations in the financial industry, and its ownership structure. Investor sophistication and the threat of dismissal in outsourced funds serve as substitutes for explicit performance‐based incentives. Finally, we find little evidence of differences in future performance associated with any particular compensation arrangement.