Money managers unhappy with the direction of their big bank are once again leaving to start their own firms, reports the Financial Times.
The reasons vary, from being forced to alter cherished and time-tested strategies that have worked for them, to being told to cut back on analyst resources to simply having to dance to the tune of a big parent company.
Start-up activity slowed during the 2007-2008 financial crisis, with the pace of new investment start-ups falling from 70 in 2007 to 32 in 2009, according to data from eVestment Alliance. But the pace has picked up, due in part to improved markets and a greater willingness by large institutional clients to invest in a smaller firm with a good track record.
During the crisis, it was the old “nobody ever got fired for hiring IBM” tried-and-true approach. Institutional investors went for the safety of big name managers, regardless of their performance record. But recently, some of the bigger money managers have had lackluster returns, prompting a new interest in boutiques.
In fact, quantitative data from Northern Trust reveals that smaller managers earned higher returns with lower volatility during the five-year period ending in 2008, according to the Times article.
Many start-up firms are now big success stories, such as Turner Investment Partners, founded in 1990, with $19bn in assets; LSV Asset Management in Chicago, founded in 1994, managing $58 billion; and Oaktree Capital Management in Los Angeles, founded in 1995, with $76bn.
What’s your opinion? Do you think the financial environment has turned around sufficiently to make this a good time for starting a new hedge fund firm? Add your comments below.