Potential Benefits of Investing with Emerging Managers

Abstract

After the grueling market experience of the past five years, institutional investors might do well to ask themselves the question, “Can elephants dance?” Despite less than stellar performance by the asset management industry's giants, they have continued to grow and gain market share. Consolidation in the industry during the past market cycle has been driven by regulatory changes in the U.S. and the entry of foreign firms via acquisition. Economies of scale in distribution, compliance and technology have given large firms a substantial cost advantage over small ones. But have these changes benefited clients? Or are expanding behemoths likely to find it more difficult to perform and become less motivated to take significant risk? Emerging managers may answer the needs of investors seeking to mitigate risks, minimize costs, and address diversification within their investment portfolios.

TOPICS: Financial crises and financial amrket history, manager selection, legal and regulatory issues for structured finance