4 ms·

I'll make a prediction. What's going away is the middle. The Billion dollar fund for equities, I'm not sure what the equivalent size would be for a bond fund

I'll make a prediction. What's going away is the middle. The Billion dollar fund for equities, I'm not sure what the equivalent size would be for a bond fund or Credit fund. At the high end you'll always have your Genious stock piker funds, like Buffet and Ackerman, etc. and your best in breed technology funds like Two Sigma. At the low end you'll still have a bunch of 50-500 million dollar funds that will always spring up and do well enough on the current market trend they predict or leverage. Unfortunately for the middle managing money gets tough. You can't compete with the really large funds for people or tech due to the amount of money and interesting problems they can throw at the hiring problem. It also gets harder to manage money when you get that big, old strategies might not be able to carry the new money you bring in from trading gains.

beamatronic 10y ago
It's the winner-take-all phenomenon, it crops up everywhere
- xapata 10y ago
  Not exactly. It's more likely a log-normal distribution. Winner-take-all means there's only 1 left at the end. I doubt that.
ChuckMcM 10y ago
So income inequality comes to hedge funds? In tech there is an interesting phenomena I've watched emerge several times; A new technology or process gets going, it has lots of players, the market grows until the technology matures and then it splits where the high end gets more high and the middle dies. New players keep appearing but they can't jump the void between new player and high end player. So for semiconductors there were dozens of chip companies and they all had various things they made. Then the market matured and only the people who could reliably fab chips remained at the top. The good middle companies were absorbed into the top, the not great ones died, and now you've got some boutique small ones (fabless) and the big guns. For "personal computers" or the PC space same thing, lots of companies, then fewer and fewer, and then just a handful. For Web companies same thing, lots of companies, then fewer and fewer, and then just a handful. (and interesting to see technology that sort of fizzled like personal robotics and 3D printing) Given that the incoming administration is pretty friendly to wall street I would expect at least some boost for the industry.
- smallnamespace 10y ago
  That's the normal life-cycle of a maturing industry, or more generally, new species flooding into a ecological niche (you can see this a recently burned forest, as waves of different species recolonize it) [1]. At the beginning, the niche is empty and new entrants flood in. The key quality for the first colonizers is to be aggressive, reproduce quickly, and be 'good enough' generalists. However, as the niche fills up, increasingly specialized species slowly push out the generalists. Note that the specialists generally don't try to compete with one another very much (competition is expensive), but create their own niche-within-a-niche. There are always new species trying to muscle in, but the specialists are able to keep out competitors by being the best-adapted for that particular role. [1] https://en.wikipedia.org/wiki/Ecological_succession https://en.wikipedia.org/wiki/Ecological_succession
alfalfasprout 10y ago
If anything, we'll see a skew towards smaller funds. Fact is, it's mindbogglingly difficult to achieve stellar returns with a lot (>= 500MM) of money. At those to sizes, a lot of great strategies fail to scale effectively. 250-500MM is a nice amount of money to manage. It lets the fund pay its small employees nicely and it doesn't have to deal with the logistical nightmares of needing to move massive amounts of capital around. The startup <50MM and small <250MM funds will continue to be of interest to investors since they often can employ profitable strategies at that scale.

beamatronic 10y ago

It's the winner-take-all phenomenon, it crops up everywhere

xapata 10y ago
Not exactly. It's more likely a log-normal distribution. Winner-take-all means there's only 1 left at the end. I doubt that.

ChuckMcM 10y ago

So income inequality comes to hedge funds? In tech there is an interesting phenomena I've watched emerge several times; A new technology or process gets going, it has lots of players, the market grows until the technology matures and then it splits where the high end gets more high and the middle dies. New players keep appearing but they can't jump the void between new player and high end player. So for semiconductors there were dozens of chip companies and they all had various things they made. Then the market matured and only the people who could reliably fab chips remained at the top. The good middle companies were absorbed into the top, the not great ones died, and now you've got some boutique small ones (fabless) and the big guns. For "personal computers" or the PC space same thing, lots of companies, then fewer and fewer, and then just a handful. For Web companies same thing, lots of companies, then fewer and fewer, and then just a handful. (and interesting to see technology that sort of fizzled like personal robotics and 3D printing) Given that the incoming administration is pretty friendly to wall street I would expect at least some boost for the industry.

smallnamespace 10y ago
That's the normal life-cycle of a maturing industry, or more generally, new species flooding into a ecological niche (you can see this a recently burned forest, as waves of different species recolonize it) [1]. At the beginning, the niche is empty and new entrants flood in. The key quality for the first colonizers is to be aggressive, reproduce quickly, and be 'good enough' generalists. However, as the niche fills up, increasingly specialized species slowly push out the generalists. Note that the specialists generally don't try to compete with one another very much (competition is expensive), but create their own niche-within-a-niche. There are always new species trying to muscle in, but the specialists are able to keep out competitors by being the best-adapted for that particular role. [1] https://en.wikipedia.org/wiki/Ecological_succession https://en.wikipedia.org/wiki/Ecological_succession

alfalfasprout 10y ago

If anything, we'll see a skew towards smaller funds. Fact is, it's mindbogglingly difficult to achieve stellar returns with a lot (>= 500MM) of money. At those to sizes, a lot of great strategies fail to scale effectively. 250-500MM is a nice amount of money to manage. It lets the fund pay its small employees nicely and it doesn't have to deal with the logistical nightmares of needing to move massive amounts of capital around. The startup <50MM and small <250MM funds will continue to be of interest to investors since they often can employ profitable strategies at that scale.