So, for the record, let’s say it loud and clear: Investment management is a for-profit enterprise. As such, asset managers and asset owners have a relationship beset with natural conflicts.
Asset owners want fees below 10 bps; asset managers prefer “2% + 20%.”1 Asset owners want transparency; asset managers favor black-box opacity. Asset owners want simplicity; asset managers hire rocket scientists to create complex optimized solutions for sex appeal.2 Asset owners want “future” outperformance after they fund a manager; asset managers would be satisfied with strong past outperformance to facilitate future asset gathering. Asset owners want a bigger alpha; asset managers would happily sell them the possibility of alpha and charge handsomely for the service of selling hope.
A brilliant passage from Jason Hsu’s December commentary for research Affiliates, check out the rest at the link above.