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> They choose them for the same reason that people choose big consulting firms like BCG or McKinsey: status and affiliation, nepotism, internal power struggles,

> They choose them for the same reason that people choose big consulting firms like BCG or McKinsey: status and affiliation, nepotism, internal power struggles, and cover-your-ass blame insurance. There must be some lean way to exploit that. In theory, you could manufacture status for your consulting firm. (So that's why BCG and McKinsey plaster German universities with their ads.)

p4wnc6 10y ago
The barriers to entry in these kinds of status/credential fields are extremely high. Starting a new asset management firm is extremely difficult, and no customer is even going to talk to you until you have a five year track record of performance and a ton of marketing machinery surrounding it. Whether it's my grandma at the local bank or a huge endowment for a state teacher's union, people still want a handshake and a white-toothed car salesman smile when they hand over their money -- they want a false sense of security even if they are knowingly complicit in its falseness. Since you can't pop up overnight and start claiming "Hey, we've been around for X years so trust us" it makes it very hard. One exception is with small hedge funds that are created with a direct tie to a wealthy individual. That's almost always how small hedge funds start and few other types survive. Basically, there will be some semi-rich hot shot finance types who want to start a hedge fund, and then they have to convince some wealthy business contact, someone with usually > $100 MM in assets, who doesn't mind fronting the significant costs to get a small strategy up and running. Then, if it works, that wealthy person will effectively be the marketing department for a while and will recruit other wealthy connections to give somewhat small amounts of money, growing AUM slowly. If you really succeed beyond the 5-8 year mark, then you can start trying to tap into more traditional client streams. But basically, without a close connection to a significantly wealthy person, the status-based barriers to entry for things like management consulting and asset management are just too high.

p4wnc6 10y ago

The barriers to entry in these kinds of status/credential fields are extremely high. Starting a new asset management firm is extremely difficult, and no customer is even going to talk to you until you have a five year track record of performance and a ton of marketing machinery surrounding it. Whether it's my grandma at the local bank or a huge endowment for a state teacher's union, people still want a handshake and a white-toothed car salesman smile when they hand over their money -- they want a false sense of security even if they are knowingly complicit in its falseness. Since you can't pop up overnight and start claiming "Hey, we've been around for X years so trust us" it makes it very hard. One exception is with small hedge funds that are created with a direct tie to a wealthy individual. That's almost always how small hedge funds start and few other types survive. Basically, there will be some semi-rich hot shot finance types who want to start a hedge fund, and then they have to convince some wealthy business contact, someone with usually > $100 MM in assets, who doesn't mind fronting the significant costs to get a small strategy up and running. Then, if it works, that wealthy person will effectively be the marketing department for a while and will recruit other wealthy connections to give somewhat small amounts of money, growing AUM slowly. If you really succeed beyond the 5-8 year mark, then you can start trying to tap into more traditional client streams. But basically, without a close connection to a significantly wealthy person, the status-based barriers to entry for things like management consulting and asset management are just too high.