If smaller, entrepreneurial firms possess a performance advantage, then why do so many investment firms today strive to become big?
Growth is the natural path of success, and size confers undeniable advantages, such as capital, resources and stability through diversification of risk. But with the growth of any business there almost always is a point of diminishing returns where large companies lose their edge and focus simply by virtue of being too big. In the investment business, this point of diminishing returns happens when asset-gathering and bureaucracy begin to stifle client focus and alpha generation. This is why so many successful large, multi-product investment companies have restructured themselves as boutiques operating autonomously under the umbrella of a larger organization. This also is why top-performing portfolio managers at larger firms frequently leave to form their own investment companies, providing a steady stream of experienced new talent.
Related Questions
- How can I get the experience levels available with the big consulting firms and the personal attention offered by smaller companies?
- If smaller, entrepreneurial firms possess a performance advantage, then why do so many investment firms today strive to become big?
- Have the Big Accounting Firms Lost Their Audit Quality Advantage?
