Triumph of the Nerds
Oct 8th, 2006 | Filed under: Institutional InvestingBy: Mark Veverka, Barron’s
Published: October 9, 2006
This article in Barron’s illustrates how the successful bifurcation of alpha and beta (and their re-combination in the form of alpha-centric investing strategies like portable alpha) leads to world domination in the money management business. Out of nowhere in the 90’s, Barclay’s Global Investors has launched not just a massive passive management (ETF) business, but has also laid on top of that a $350 billion-plus quantitative active management (read: hedge fund) business. BGI is now the second largest money manager on the planet (after UBS).
“Long revered in institutional circles for its brainy methodologies, BGI emerged as an innovator in index-investment strategies about 35 years ago. (Vanguard popularized them among individual investors.) Barclays now oversees more than $1 trillion in portfolios that use indexing as their key strategy.”
“Its active-management business, which is 100% quantitative and includes a highly lucrative hedge-fund operation, is a huge success. BGI is the largest risk-controlled active manager in the U.S., with $369 billion in assets.”
But like Citigroup (and potentially others), BGI may face challenges integrating the culture (and compensation schemes) of both passive and active (hedge) investing:
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