Would a mutual fund manager to better with $1 billion or $100 million?
 

I was talking to someone at work about this today, and to me, it seemed to make sense that the same manager would have better results with the smaller fund, as it would allow him to be more agile as well as put more into what he considers his best options. Versus for a larger fund, it becomes more similar to an index and thus is handicapped by its size.

However, the person I work with disagreed and said that there's no evidence, and no reason to believe that.

I think my position makes sense, but can anyone else explain why either way?

thanks,

jeff

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

Of course you're right. Anyone that suggests you're wrong is insane.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

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Of course you're right. Anyone that suggests you're wrong is insane.

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yea that's what i thought. it's just that this guy has spent 25+ years in hedge funds and trading and i consider him smart, that gave me some second thoughts.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

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Of course you're right. Anyone that suggests you're wrong is insane.

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yea that's what i thought. it's just that this guy has spent 25+ years in hedge funds and trading and i consider him smart, that gave me some second thoughts.

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Well, let's take his statement step by step. He said two things: (1) there's no evidence (2) there's no reason to believe it.

1: I have no idea if there's evidence. I'm not an academic researcher, so this really isn't something I would know.

2: There is absolutely reason to believe this. Very simply, you need fewer good ideas with 100 million than you do with 1 billion. A $1 billion portfolio is clearly going to bring in liquidity concerns when buying most securities. Not that it's proof, nor is it a reason to believe anything necessarily, but Buffett has made comments to the effect of promising he could return 50% on a million dollar portfolio. Obviously he doesn't do that on however many billions he has in his actual portfolio at Berkshire. The differences would obviously be less on the amounts you mentioned, but the same principles are going to hold true.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

I cant believe someone in the industry would argue the bigger fund. Its not even remotely close, the largest funds are limited in what they can trade based on liquidity.

Evidence enough for me is that many large funds return capital once they reach a certain AUM.

Buffett has also been quoted to say something along the lines of he could return 50%+ annually if he was only managing a few million.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

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I was talking to someone at work about this today, and to me, it seemed to make sense that the same manager would have better results with the smaller fund, as it would allow him to be more agile as well as put more into what he considers his best options. Versus for a larger fund, it becomes more similar to an index and thus is handicapped by its size.

However, the person I work with disagreed and said that there's no evidence, and no reason to believe that.

I think my position makes sense, but can anyone else explain why either way?

thanks,

jeff

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Your coworker is clearly right and everyone on this thread is clearly wrong. A manager will do much better earning 2% on 1b than on 100m:)

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

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I was talking to someone at work about this today, and to me, it seemed to make sense that the same manager would have better results with the smaller fund, as it would allow him to be more agile as well as put more into what he considers his best options. Versus for a larger fund, it becomes more similar to an index and thus is handicapped by its size.

However, the person I work with disagreed and said that there's no evidence, and no reason to believe that.

I think my position makes sense, but can anyone else explain why either way?

thanks,

jeff

[/ QUOTE ]

Your coworker is clearly right and everyone on this thread is clearly wrong. A manager will do much better earning 2% on 1b than on 100m:)

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winnar (though i had the same thought, i didn't post it so i don't get credit [img]/images/graemlins/frown.gif[/img])

Barron

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

although i'm obviously being levelled, it was fund performance and not profits by the mutual fund manager

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

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although i'm obviously being levelled, it was fund performance and not profits by the mutual fund manager

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LVLD! (duh it was fund performance...not the funny part though)

Barron

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

I dont know about those exact numbers, but I think it depends on the fund manager as well. After reading Peter Lynch's books (one up on wall street, beating the street) it seems he did alot better with say 13 million , then he did with 3 billion. I would say anything over 1 billion though, and your going to have some huge problems you wouldnt otherwise have with say 100 million.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

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although i'm obviously being levelled, it was fund performance and not profits by the mutual fund manager

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Sorry I couldn't resist:) Buffett's quote is referenced here.

You are right, and I'm shocked any professional would disagree with you. Essentially your coworker is arguing that giving an investor fewer investment opportunities doesn't affect performance. I.e. every fund has a lower threshold where investments are too illiquid to purchase or too small to impact fund performance. The bigger the fund the higher the threshold.

Maybe if you ran a computer driven fund that could afford to hold thousands of different stocks you might not have a lower threshold, but even in that case the bigger the fund the less you can buy of your most attractive investments, as a percentage of the fund.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

cost per dollar managed diminishes greatly for the firm when you are managing 1 billion vs 100 million. i think this is the valid angle from which to make the argument. you will get higher returns off the 100 million but the total cost of management is very similar between the two scenarios, whereas the total profits are nearly 10x larger in the case of a billion dollar fund.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

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cost per dollar managed diminishes greatly for the firm when you are managing 1 billion vs 100 million. i think this is the valid angle from which to make the argument. you will get higher returns off the 100 million but the total cost of management is very similar between the two scenarios, whereas the total profits are nearly 10x larger in the case of a billion dollar fund.

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Yes but the expense ratio that the fund charges to investors will most likely be similar between a $1bn fund and a $100mm fund.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

But dont they normally divide those big funds into a bunch of managers with like $300 mill each.

I know a good friend of my dads who I normally play golf with works as a fund manager for ubs bank, and he runs $300 mill. Just wondering...

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

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But dont they normally divide those big funds into a bunch of managers with like $300 mill each.

I know a good friend of my dads who I normally play golf with works as a fund manager for ubs bank, and he runs $300 mill. Just wondering...

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I think it's all across the board. Monish Pabria started managing $10M or so from a bedroom in his house. He's now over $500M and supposedly still managing from the bedroom (he likes to take naps every afternoon). I think in most cases your costs don't scale with the size of your fund.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

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But dont they normally divide those big funds into a bunch of managers with like $300 mill each.

I know a good friend of my dads who I normally play golf with works as a fund manager for ubs bank, and he runs $300 mill. Just wondering...

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some do, some don't. I'm pretty sure most fund families don't do this though.

By dividing it up, to say 7 different sectors, with each getting a % to manage, you solve 2 problems:

1) Each can specialize and delve into their own sector

2) and possibly more important:

the stability of the fund is not just dependent on 1 person leading it. That way, even if one 1 person leaves, the fund should continue to do great. Versus, for funds where 1 manager has been there for 20+ years of prosperity, it's somewhat unknown how the new manager will do.

At the same time, there's something to be said for having 1 person set the vision and direction of the fund, rather than a few competing.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

They still have to adhere to the limits and regulations. It doesn't matter if there are two different managers buying the same stock.

Now, if you're talking hedge fund, they are better off with more money. They can do more exotic things like private placements, or even file the occasional 13d.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

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They can do more exotic things like private placements, or even file the occasional 13d.

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Anyone with $100M can do private placements if they decide to cultivate that business.

I don't understand why filing a 13d is an advantage. First, you are telling the world what you own which is a disadvantage, esp. if you are successful enough to have copy cats trying to free ride on your picks. Second, anyone can send a letter to management demanding change. If you meant that larger funds have more resources to promote company changes as activist/acquirers, that's a good point. But i'm skeptical that a single advantage that's only applicable to rare investments overcomes all the other disadvantages of size.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

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They can do more exotic things like private placements, or even file the occasional 13d.

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Anyone with $100M can do private placements if they decide to cultivate that business.

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You can't do very many for 5 or 10 million before you're tying up a substantial part of the fund.

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I don't understand why filing a 13d is an advantage. First, you are telling the world what you own which is a disadvantage, esp. if you are successful enough to have copy cats trying to free ride on your picks. Second, anyone can send a letter to management demanding change. If you meant that larger funds have more resources to promote company changes as activist/acquirers, that's a good point. But i'm skeptical that a single advantage that's only applicable to rare investments overcomes all the other disadvantages of size.

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Daniel Loeb, David Tepper, and Eddie Lampert seem to be doing well with it. As for copycats jumping on and buying it up, that makes you more money. Look at how Kerkorian was able to manipulate GM, all the while the company still stunk.

Re: Would a mutual fund manager to better with $1 billion or $100 mill
 

Now, if you mean to ask "...would a mutual fund MANAGER do better with a $1 billion vs $100 million..." then the obvious answer would be $1 billion because HIS (personal) "management fee" of 1-2% would be 10x larger with a $1 billion of assets than with $100 million.

If your question is which would yeild higher returns (for the shareholders/partners) then the most PROBABLE answer is with a $100 million worth of assets. More liquidity and easier to ensure with options and futures contracts. Buffett started out with just $105,000 - granted it was 50 some odd years ago.