Santangel's Review

Commentary

The Gold Medal of Investing?

Here at Santangel’s Review we’re unabashed fans of small hedge funds, especially those that are willing to close to new capital or give back money when they feel that AUM size is becoming an anchor to performance. There are plenty of great investors running very large pools of capital, but with some exceptions (distressed debt, for example), we’d feel confident saying the returns that these investors generate would be higher if they were managing far fewer dollars.  In that vein, the New York Times published an article regarding Louis Bacon’s decision to return $2 billion in capital to his investors. We thought we understood the reasons why some mega-funds grew so large when it was so apparent that performance would suffer. Fame and fortune being the main ones.  It turns out – according to this quote from Bacon – there is a third reason:

“The ability to manage large assets well — it’s like being Michael Jordan or winning the gold in the Olympics, it’s what you aspire to.”

A very large pool of capital certainly adds a tremendous degree of difficulty to investing. Buffett might even call it an insurmountable hurdle, but to investors like Bacon, it seems to be the ultimate challenge like playing the back tees at Pebble Beach or to keep the Olympic theme going, doing the most difficult jumps in gymnastics or twists in diving.