[REPLAY] Michael Mauboussin – Active Challenges, Rational Decisions and Team Dynamics (Capital Allocators, EP.36)
Capital Allocators – Inside the Institutional Investment Industry
High Stakes Yield High Returns
In investment management, the amount of assets under management (AUM) significantly influences overall profitability. A manager with high alpha and excess returns can generate substantial profits, but if managing a small AUM, the gross profits may be modest. Conversely, the same manager, when overseeing a larger AUM even with lower alpha, can achieve impressive profits due to the higher stakes involved. This principle is akin to poker: winning against weaker players yields lower returns, whereas competing against more skilled players at higher stakes can lead to significantly greater earnings, underscoring the importance of scale in asset management.
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