Letter from the Founder
The Tyranny of Size
Why is it that investment management complexes today are so large and,
apparently, getting larger? One answer is that the asset management
business, particularly on the fixed-income side, would appear to be scalable.
Another answer is that many asset owners like the assurance of brands—
it makes their choices easier to justify. It also should be said that a small
handful of asset managers have proved intelligent buyers of other firms.
This is all true—the problem is that it could also have been written in the
1970s, and exactly at a time when a new generation of investment boutiques
began to make their presence felt. Over the next decade, those boutiques
ripped the bulk of the business out of the hands of the bank- and insurance-owned asset managers that had hitherto dominated the scene.
Perhaps another tectonic shift is at hand. Yet, it is not altogether clear whence
this talent will emerge. A handful of hedge funds have hovered up institutional
assets, but only two or three look like real asset management firms, as opposed
to the offspring of giant and often unreliable super-egos. From liftouts? It is
surprising how few portfolio managers fly the coop these days—perhaps their
masters (or at least the best of them) have learned what it takes to keep this
talent, warm if not always content, firmly attached to the corporate teat.
So, if indeed a shift is at hand, it will need to be something quite different.
Perhaps the threat to the existing asset management giants will come
from open architecture—the real power could move away from the giant
investment complexes who manufacture to new complexes that allocate.
That certainly hasn’t happened yet—the open architecture allocators have an
interesting and growing niche in the institutional investment world, but they
are not yet counted among the superpowers. It would surprise many if they
move out of their ghettos and take center stage. Then again, as we learn anew
each generation, we persistently get surprised. Of course, now that you have
read it here, it won’t be such a surprise after all.
Charles Ruffel, Founder and Director, aiCIO
4 | ai-CIO.com | October 2010
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