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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