Traditional vs. Alternative Asset Managers
Absolutely. It inspires confidence when the manager has personal money involved. There's a more clear alignment of interests.
Traditionally, an asset manager was a person that took your money and purchased stocks and bonds with it.
To summarize this discussion:
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After all, what else could be purchased?
Actually, it does. Think about how you might feel if your money manager was just playing with your money and not their own.
One thing that certainly was not used by traditional managers decades ago was data from social media or trending images online. This is relatively new, and "big data" is all about getting at this information, and using it for things such as investment recommendations. Machine learning algorithms have been developed to get this data in real time and figure out how to make use of it. What would the algorithm have to be in order to be successful?
That's true; all of these can be purchased as alternatives to stocks and bonds. These alternative asset classes are now managed by alternative asset managers, as well as several other asset classes.
Suppose a manager has traditional stocks and bonds, but uses leverage or derivative instruments to increase or decrease the beta of the portfolio. What would you call that?
Not really.
Traditional managers don't use leverage or derivatives.
Most asset management firms are privately owned, and others such as private equity and hedge funds are often formed as limited partnerships. What do you think an investor would say about a manager that invests their *own* money in the fund?
No, there's no conflict here. If anything, interests are more aligned.
Not really.
The only assets under management are stocks and bonds.
Sure.
And the line between traditional and alternative asset managers is getting tougher to see. There's a spectrum of styles across nearly every dimension you can imagine.
Absolutely!
Not really—just fast.
Many programs look for keywords or certain things that give clues as to events underway. But the common thread in these efforts is to be the first one to make use of the information before everyone else figures out what's going on.
Another trend in alternative asset management is the rise of robo-advisors. This is a relatively small slice of the total market, but still it's growing to about USD 2 billion in assets under management. Just as the name sounds, virtual robots are programmed to help people make investment decisions automatically. A lot of the same questions are asked in a standard client visit, asking "what should I do with my money," so this is a natural evolutionary step in the field. What's a clear advantage to a robo-advisor?
Precisely! It won't give you very tailored advice, necessarily, or any added flexibility, but it sure is efficient.
No, it won't give you very tailored advice, necessarily, but it sure is efficient. So the real advantage here is the low cost.
No, it won't be any more flexible than a real person, but it sure is efficient. So the real advantage here is the low cost.
They are getting designed better and better to offer greater services and advice, and large investment firms are finding that they are quite useful for reaching a certain target market that allows them to save time on smaller investors. Time will tell what the next true "alternative" is.
Private equity
Real estate
Clearly traditional
Clearly alternative
A mix of traditional and alternative
It's a conflict of interest
It's great
It doesn't matter
Global macro hedge fund
Fast
Thorough
Low cost
Tailored advice
Greater flexibility in portfolio design
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