Recent theoretical and empirical research suggests a link between a manager's career concerns---the desire to keep his current job or obtain a better job---and his risk-taking behavior. As a manager's career concerns change over time, his risk-taking behavior is likely to change as well. This dissertation provides evidence supporting this concept: risk-taking behavior that is related to career concerns does indeed change over time in the hedge fund industry, and this changing behavior explains the underperformance of more experienced hedge fund managers relative to their less-experienced counterparts. This result is used to motivate a test of performance persistence in which funds are selected for investment based on both past performance and manager experience. This more powerful selection process results in a finding of short-term (three month) persistence of less experienced, past good performers over more experienced, past poor performers, which is driven primarily by persistence in poor performance among more experienced managers.; The first dissertation essay documents a negative relationship between hedge fund manager experience and performance. Less experienced hedge fund managers have significantly better performance than more experienced managers, even when controlling for style and risk factors. This performance differential is related to career concerns that differ among more and less experienced managers. More experienced managers employ less volatile trading strategies and tend to mimic the strategies of other managers (they "herd"). Much of the underperformance of more experienced managers can be explained by these reductions in risk-taking behavior. Overall, the evidence strongly supports the hypothesis that, motivated by an increasing desire to keep their current jobs, hedge fund managers reduce risk as their careers progress, leading to a significant reduction in their performance.; The second essay examines whether hedge funds exhibit performance persistence. Although there is evidence of persistence among raw returns, when these returns are properly adjusted for common risk and style factors there is no evidence of short term (three-month) or long term (1-year) persistence. The remainder of the paper uses this relationship to design a more powerful analysis of persistence that includes manager tenure as well as past performance in selecting funds for investment. A portfolio that is long good past performing/less experienced managers and short bad past performing/more experienced managers displays persistence at the three-month time horizon. This finding is driven primarily by significantly poor performance that persists among more experienced managers. To explain this result, a conditional survival analysis finds an asymmetry in termination probabilities: conditional upon performance that is in the bottom two-thirds of managers, less experienced managers are significantly more likely to be terminated than more experienced managers. Since more experienced managers have lower returns, this drives the persistence results. This finding is broadly consistent with a number of reputational hypotheses: managers with more experience (reputation) are weeded out less quickly for a poor showing than are managers with less experience (reputation). This result is also consistent with the first dissertation essay, as the high level of performance required for young managers to avoid significantly high termination probabilities induces them to take on more volatile trading strategies and herd less than old managers.
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