Institutional investors feel smaller money management firms have advantages in achieving higher returns, a survey from CoreData Research shows.
In the July survey of 100 professionals in the investment industry, including chief investment officers at money managers and asset owners representing an estimated $5.7 trillion in assets, 90% say that larger firms are "at a disadvantage when it comes to delivering higher returns," a news release announcing the survey results said.
When asked what the prime factors are impeding larger money managers to generate alpha, 65% said bureaucracy was a prime factor, while 42% said that larger firms are more risk-averse in their investment selections. Thirty-nine percent said inefficient personnel structures impeded alpha-generating efforts, while 24% said larger firms has less innovative solutions and 23% said larger firms have more stringent regulation requirements. Multiple answers from respondents were accepted.
"We spoke to a range of investors as part of this study and many feel that when an asset manager gets too big there is a very real risk of it losing focus on the pursuit of pure alpha and instead becoming an asset gatherer," said Craig Phillips, head of CoreData Research International, in the news release. "But these findings do not signal the death knell for larger investment houses. While smaller managers are more likely to be specialists in particular markets, larger firms can leverage their resources to adopt a multiboutique structure that takes this more specialist, niche approach to a wider investor audience."
When asked, however, whether respondents would emphasize larger or smaller managers when seeking an active manager with which to partner, 62% said size does not matter, while 20% said larger firms and 18% said smaller films.
When asked what was main driver of respondents' choice of an active manager, the firm's reputation and fiduciary record received the most responses at 60%, followed by specialization/niche approach at 53%, access to different asset classes, markets and strategies at 50% and management fee structure and the ability to deliver higher alpha at 33% each and brand recognition at 27%. Multiple answers were accepted.
Mr. Phillips could not be immediately reached for further comment.
