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#11
07-20-2007, 06:01 PM
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Re: Would a mutual fund manager to better with $1 billion or $100 mill
[ QUOTE ]
although i'm obviously being levelled, it was fund performance and not profits by the mutual fund manager [/ QUOTE ] 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. 
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#12
07-20-2007, 06:03 PM
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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.
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#13
07-20-2007, 06:46 PM
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Re: Would a mutual fund manager to better with $1 billion or $100 mill
[ QUOTE ]
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. [/ QUOTE ] Yes but the expense ratio that the fund charges to investors will most likely be similar between a $1bn fund and a $100mm fund.
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#14
07-21-2007, 09:55 AM
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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...
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#15
07-21-2007, 01:16 PM
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Re: Would a mutual fund manager to better with $1 billion or $100 mill
[ QUOTE ]
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... [/ QUOTE ] 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.
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#16
07-21-2007, 01:27 PM
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Re: Would a mutual fund manager to better with $1 billion or $100 mill
[ QUOTE ]
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... [/ QUOTE ] 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.
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#17
07-21-2007, 04:31 PM
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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.
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#18
07-21-2007, 07:58 PM
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Re: Would a mutual fund manager to better with $1 billion or $100 mill
[ QUOTE ]
They can do more exotic things like private placements, or even file the occasional 13d. [/ QUOTE ] 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.
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#19
07-21-2007, 08:25 PM
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Re: Would a mutual fund manager to better with $1 billion or $100 mill
[ QUOTE ]
[ QUOTE ] They can do more exotic things like private placements, or even file the occasional 13d. [/ QUOTE ] Anyone with $100M can do private placements if they decide to cultivate that business. [/ QUOTE ] You can't do very many for 5 or 10 million before you're tying up a substantial part of the fund. [ QUOTE ] 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. [/ QUOTE ] 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.
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#20
07-25-2007, 07:39 PM
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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.
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