Jonathan Berk, and his co-author Jules van Binsbergen, have a summary piece on a formal academic paper they published by the JFE in 2014. Here is a snippet:
Active fund managers are skilled and, on average, have used their skill to generate about $3.2 million per year. Large cross-sectional differences in skill persist for as long as ten years. Investors recognize this skill and reward it by investing more capital in funds managed by better managers. These funds earn higher aggregate fees, and a strong positive correlation exists between current compensation and future performance.This is quite a bold claim, given the seemingly relentless attack on active management the past few years. However, this claim is coming from Jonathan Berk, who is not just another academic–this guy is the real deal. Prof. Jonathan Berk is a very well-known name in academic research circles. One of his most famous papers, co-authored by Richard Green, is titled, “Mutual Fund Flows and Performance in Rational Markets.” The piece is a must read for anyone making an informed claim that active management is a complete waste of time. The Berk and Green paper made researchers rethink how they determine whether an investment manager’s performance record is due to skill or luck. Before Berk and Green, researchers testing the efficient market hypothesis pointed towards the evidence that mutual fund manager performance has little persistence. Managers who do well in a specific year, don’t tend to achieve their same “skill” in future years. In other words, skill isn’t persistent. And of course, the “logical conclusion” from this research was that good performance is simply due to luck. Err…Wrong.