This is a great chart on the rise and decline of entrepreneurial asset management. There was a great surge in hedge fund launches, but that is over. Regardless of the strategy, the launches are falling from the peak, and it looks like they will never return.
Smart managers form pods and work for multi-strategy firms. The cost structure for start-ups is high. Fees are coming down while inflation has made all services more expensive. The compliance and regulatory costs are only going higher. Investors are smarter and conduct more due diligence. They are less likely to take risks on start-ups.
Is this good for investors and the markets? Perhaps there were too many launches at the peak. Everyone wanted to be a hedge fund manager and get incentive fees, yet the skill pool may have been much smaller. After accounting for factor analysis, there was likely less alpha than thought.
Markets are competitive and efficient, yet it seems that we are losing something when new ideas and managers are not trying to beat the market. Nevertheless, industries mature. There are economics of scale and there is institutionalization of the process. Perhaps this alarm is just a longing for the old days of start-up zeal, but it is likely that investors are better served with a marketplace of larger firms that can control costs and better diversify.
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