I keep hearing and reading about how the industry is going through the process of splitting in 2 in response to the rise of passive. so you either need to be a big huge global player or a small boutique house.
People keep saying it but I’ve not actually heard anyone support their case. I’m assuming they are thinking that you either need to be huge in scale to relieve the reduction in margins or be a small shop with a premium product but I don’t see why this would wipe out a whole segment of the industry. anyone who has ever worked in AM will know that the medium size shops are the sweet spot to work at and ideally you want to join them when they’re growing and ride the wave hoping that they don’t blow up. Any thoughts BSDs?
I don’t know that I’d go so far as to call it bifurcated, but there is some truth to that statement. From the perspective of the mutual fund industry, DOL regs really shook things up…even though they still haven’t gone into effect and maybe never will. So, obviously a fund company’s goal is to raise assets. In order to do that you need distribution. Just having your funds available at Schwab and TD (Fidelity isn’t even that easy anymore) won’t cut it. You need to get into Merrill, Morgan Stanley, etc.
Unfortunately for active managers, those firms are narrowing their fund offerings and kicking funds off their platforms (called “rationalization”) and making it much harder for new funds to get onboarded. In order to have your fund available for sale at the major BDs, it needs to have some combination of the following: already high AUM at that BD, consistent above average performance, lower volatility, or a unique approach that adds something different to their existing fund line up.
Boutique managers generally do a great job of hitting several of those factors. Huge fund companies will have some funds that will make the cut and some that won’t but ultimately the BDs need the bigger fund companies to pay the bills (it costs a lot of money to be a partner firm at any of the major BDs) so they get a little more latitude. This leaves the mid-sized guys kind of swinging in the wind. Either they need to adapt and diversify their product offering, or cut back and focus on their strengths.
It’s not quite that bleak. Not really at all in the current regulatory environment, actually. But that’s how many people felt last year. Mid sized shops still face challenges, but they’ll still be around.
I think if you’re doing something that requires representative sampling or some other non direct risk replication, you’d probably need someone in the department with some level of quantitative awareness, even if the job becomes very procedure based after a while. If you’re managing something like Vanguard 500, I don’t know what you’d do every day, other than just watch the computer do a bunch of market on close orders every day.