Monday, June 22, 2015

Today's Investing for Survival

   Investing for Survival

            12 things I learned from David Tepper: #8

8. “We don’t want to be bigger than we can invest.”
“The question is what size gets you – except more fees for the manager. But it doesn’t necessarily make the investor more money.”
Part of what David Tepper is saying is that he would rather be an investor than an asset gatherer. A smaller fund in which he has a greater personal stake can be a far better outcome for him than trying to make a lot of fee-based income from investing the capital of other investors. He also believes there is no optimal size for every fund. Size matters. David Tepper explains: “Say you want to buy 5 percent of a $2 billion company, and have it be meaningful. That means it’s a 1 percent position in a $10 billion fund. So if you’re an equity fund, if you keep getting bigger and get to $20 billion, that means your position is now only a half percent position. The 1 percent position doesn’t do much for the fund and so the half percent position does half as much. So there’s an aspect to the business, in equity funds especially, that gets funky on size.” The other problem that people have learned the hard way in many cases is that as you grow assets under management, it becomes harder to find opportunities. For example, Charlie Munger points out: “The future will be harder for Berkshire Hathaway – we’re so big – it limits our investment options. But, something has always turned up.”

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