The costs and benefits of working for a large asset manager
Fund managers always wonder if they should go it alone and set up their own boutique firm or be part of a larger asset management firm with its considerable marketing and distribution power.
Working for a large asset management firm presents a complex mix of costs and benefits. The Swiss Finance Institute and the University of Luxembourg conducted a study to evaluate how the size of the fund family and the skill level of individual fund managers impact performance. They found that skilled fund managers can significantly outperform the market, but larger firms impose more bureaucracy and processes that limit the ability of these managers to express their views in a portfolio.
As a result, the outperformance gains for skilled fund managers working in large firms are smaller compared to those in boutique investment firms. However, less skilled fund managers tend to perform better in large firms due to having less room to pick losers, which reduces risk for investors. One advantage for fund managers in large firms is the increased fees generated from bigger sales teams and better distribution, leading to higher income for the fund manager.
Overall, the decision to work for a large asset management firm versus setting up a boutique firm depends on whether the priority is maximizing potential outperformance or minimizing risk.
Written by urgent.news from Klement on Investing's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
