Hogwarts Finance
Posted: 13 Dec 2023
Date Written: October 26, 2023
Abstract
CIOs and consultant-advisors oversee about $10 trillion of institutional assets in the US. They have underperformed passive management by one to two percentage points a year since the Global Financial Crisis of 2008 (GFC). They rely heavily on expensive alternative investments; and the more they have in alternatives, the worse they do. Large institutions use scores of managers, making them high-cost closet indexers. Inefficiency abounds.
What is lacking in institutional fund management today? Intellectual rigor, for one thing. The professionals are ignoring their canon. Lawyers coming before the bar are expected to know the law. Physicians, conspicuously, in my experience, attempt to adhere to the best medical science. Engineers do not improvise when designing bridges. But the people managing institutional assets behave not like they attended the Booth, Säid or Wharton schools to study finance but Hogwarts School of Witchcraft and Wizardry.
Suggested Citation: Suggested Citation