A Prediction of What the Alt Sector Will Look Like In 25 Years
There exists 3 mega-managers, each with trillions in AUM allocated across a wide spectrum of HF and PE strategies. The funds don’t particularly perform well, but they don’t perform poorly. Capital continues to follow the path of least resistance. People still don’t want to lose their jobs, and the general public remains oblivious to “investing” in general.
All three mega managers pursue defensive marketing tactics, spending billions of dollars on brand awareness. Arenas sport their names, digital billboards are everywhere, athletic sponsorships are plentiful, and sleek, branded yachts sail in the America’s Cup. These firms lumber along, rolling over those that have not embraced technology or niche marketing strategies. They continue to drone on about risk mitigation and what not.
There are two primary digital trading platforms managing trillions. Both promise low fees and access to the world’s most sophisticated investment strategies. The competition between them is aggressive and demeaning. If you are on one, you can’t be on the other. It is a world dominated by quantitative and AI strategies. Those accountable for the “code” are considered celebrities within the main financial districts. Billions of dollars immediately flow to the top 10 performing CIOs across these platforms.
With thousands of “managers” competing to enter the upper echelon of the two platforms, and the difference in performance being so miniscule, competition is fierce. Fees are compressed, the limits are pushed, and millions are spent on marketing to “influence” the crowd, which includes all the top institutions, the world’s most prominent single and multi-family offices, and select ultra HNW.
Then there are the independents, the 7 Brands that co-exist with the platforms. Each manages $100B plus. Apple and Amazon top the list. These 7 Brands possess intense loyalty. Their following is cult like in its intensity. The platforms attack the fees these brands charge and their net performance. The brands counter with intense loyalty programs and emotional based marketing. Those investors fortunate to have access to “the brands” protect their elite status.
Every three or four years one or two of the top platform performers spins off the platform in an attempt to become an iconic “brand.” It rarely happens. The leaders of these firms don’t do well outside the spotlight, and struggle to embrace or understand what it means to be a brand.
Starting a fund takes serious working capital and an enormous marketing war chest. It takes years of staying power to fight your way onto the platform, and several more years to gain sustainable AUM. A few brave emerging managers look to go at it alone and avoid “listing” on the platforms entirely. To pursue such a path requires real money.
Finally, there are the Agents, the people and organizations that represent the upcoming stars, the people that can get the seed money. These extremely well positioned firms and individuals take on celebrity status as well. If you are fortunate enough to be “picked-up” by one of the top agencies, you are all but guaranteed a shot at stardom of which very few actually achieve.
If you look at the industry in general the lines between institutional and retail are blurred. The elusiveness is gone. Hedge Funds, if you can even call them that, talk very little about what they do and more about what it means to be an investor. Private Equity firms use the cumulative marketing budgets across their portfolio companies like massive swords, slicing off enormous pieces of market share. Competition is deadly. It has been ten years since any has even considered peddling for cash with a marketing deck and a smile.
By Kyle Dunn