Endless work and I love it.

I got through the third paragraph of this article and I said to myself “Welp, you’ll be cleaning up these portfolios in a few years when they get transferred in….”

Here’s Bloomberg on JP Morgan’s new initiative that allows ordinary investors to help themselves to hedge funds and private equity at $100,000 buy-in increments:

JPMorgan Chase & Co. plans to offer sophisticated investments to a much broader clientele.

The bank is slashing requirements to participate in certain alternative investments that its asset management arm once offered mainly to institutions or the ultra rich. That will allow it to accommodate more allocations made through registered investment advisers.

The new minimum buy-in will be $100,000, down from $10 million previously, according to the New York-based firm. Some additional accreditation requirements will still apply.

I don’t have a problem with “sophisticated” investment funds, except for the fact that there is no evidence that retail investors (or their advisors) can reliably pick winning products in the space. I actually don’t even think most advisors who recommend them can really explain them correctly or adequately discuss the potential downside of this approach. I’m not even talking about the risk of losing money (which exists in non-sophisticated funds too), I’m more talking about the opportunity cost of having allocations to things that cost too much and benefit a portfolio too infrequently over long stretches of time.

There’s also a lot of academic evidence that says the more choices we present people with, the more likely they are to make poor decisions. Choice is great, within reason. Unlimited choice ends up looking like when your kid does her own toppings at the frozen yogurt place. Except this isn’t about yogurt, it’s about people’s lives.

…and I don’t know what this sentence even means:

For financial advisers, the ability to access a broader suite of products helps keep their clients engaged.

???

Asset management is now a form of entertainment?

And, of course, after the next bear market there will be some major hindsight winners, into which the majority of people on these platforms will pour rivers of cash. Just in time for the next spate of massive underperformance as mean reversion kicks in or the funds get too big to act as they once did or it turns out that the edge they displayed in one highly specific environment cannot be replicated in subsequent environments or some such combination of these limitations thereof.

And then, predictably, the advisor who sold them will lose the clients (maybe even intentionally) and we’re going to have to fix these portfolios.

It’s endless work in the future being created for us now, and I love it. It’s like owning a glass factory and watching the neighborhood kids get their first slingshots.

See you soon!

 

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  1. Endless work and I love it. – Financial Solutions commented on May 17

    […] I got through the third paragraph of this article and I said to myself “Welp, you’ll be cleaning up these portfolios in a few years when they get transferred in….” Here’s Bloomberg on JP Morgan’s new initiative that allows ordinary investors to help themselves to hedge funds and private equity at $100,000 buy-in increments: JPMorgan Chase & Co. plans to offer sophisticated investmen… Source: http://thereformedbroker.com/2018/05/17/endless-work-and-i-love-it/ […]

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    […] I did a post about how a major bank was going to open up hedge funds, private equity and venture capital to the masses with a new minimum buy-in of $100,000 for these strategies – down from the original $10 million. One of the stated purposes of this was to “increase engagement” between the wealth manager and the clients. Which is roughly translated to “keep things interesting and give people stuff to talk about.” Another way of putting it: Asset management as a form of recreation. […]

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  5. Three Uncelebrated Edges commented on Jun 25

    […] I did a post about how a major bank was going to open up hedge funds, private equity and venture capital to the masses with a new minimum buy-in of $100,000 for these strategies – down from the original $10 million. One of the stated purposes of this was to “increase engagement” between the wealth manager and the clients. Which is roughly translated to “keep things interesting and give people stuff to talk about.” Another way of putting it: Asset management as a form of recreation. […]