Back to Portfolio for the Future™

Educational Alpha: Quality Before Quantity

By William (Bill) J. Kelly, CAIA, the President & CEO of the CAIA Association.


About 30 years ago I had the good fortune to be part of a small group of entrepreneurs that decided to create a new and different kind of asset management firm. We had been a tiny subsidiary inside of a very large bank, where we saw the famous Bogle axiom play out in real time. Our goal was to start a firm where clients and culture would complete each other and so Boston Partners was born. About that same time the wizards at Goldman Sachs came out with a report that the mid-sized asset management firm was about to have its Kodak-moment. The large would get much larger, the very small boutiques would carve out a living, and the mushy middle would be gone. We ignored this analysis within the calculus of our strategic plan, and the success for the client and that firm now speaks for itself.

Well, it is now déjà vu (time) all over again. PwC recently published the results of their Global Asset and Wealth Management Survey where we learn that one out of every six asset managers will have been acquired or expired in the next five years. A failure to innovate or propagate around a client-centric value proposition should always hasten one’s demise, but history has shown assets to be very sticky and the ability to kill a high margin business to be hard. Maybe this time it is different, but again I am ‘taking the under’ on this call. There are a lot of other interesting points herein and of note PwC is making a base-case call for 5% (per annum) AUM growth over the next five years. Perhaps it is tucked somewhere in the fine print, but whether nominal or real, the investor will not be happy regardless of where inflation finally settles. Maybe alts can save the day “which will account for around half of global asset management revenues by 2027.”

Or maybe not … last week CalPERS reported 2023 fiscal year returns and the WSJ headline read “A Winning Bet for Pension Funds Goes Cold.” The context is that while the plan returned a positive 5.8%, the drag came from single-digit negative returns for the PE and RE allocations, and the true outsized upside came from the public equity markets — #gasp.

Note to WSJ: Asset allocation has nothing to do with ‘bets’, investment decisions should only be judged over the long term, and private equity and real estate are no longer asset classes. In the latter case, look no further than the (very wide) intra-quartile performance, the high correlation between public market indices and median IRRs for PE or RE, and the compelling need for proper IDD, where manager access and selection are table-stakes.

In related news, we also learned last week that Blackstone became the first card-carrying Member of the PE trillion-dollar club as measured in assets under management, good for them, their shareholders and hopefully, their clients. They may be the first but will not be the last, especially if PwC’s  prediction comes to be. There is also a recognition that the next rung of growth will very much play into the democratization narrative and the wealth management firms loom large as the secular decline in institutional pension assets cedes majority ground. Perhaps it is time to replace the AUM label with CAUMC (Client Assets Under My Care) lest we forget why we are here in the first place. What say you FCLTGlobal?

We are about through the dog days of summer here in the northern hemisphere, and much cooler weather arrived on Cape Cod this week after some very severe storms. Let us remember that there is always a tomorrow, and it can be better if we prepare for it today, with our interests always sitting behind those of the client. My outlook is that six out of every six managers will benefit from this advice. What’s in your strategic playbook?

Seek education, diversity of both your portfolio and people, and know your risk tolerance. Investing is for the long term.


About the Author:


Bill Kelly, CAIA, has been a frequent industry speaker, writer, and commentator on alternative investment topics around the world since taking the leadership role at the CAIA Association in January, 2014. Previously, Bill was the CEO of Boston Partners and one of seven founding partners of the predecessor firm, Boston Partners Asset Management which, prior to a majority interest being sold to Robeco Group in Rotterdam in 2002, was an employee-owned firm. Bill’s career in the institutional asset management space spans over 30 years where he gained extensive managerial experience through successive CFO, COO and CEO roles. In addition to his current role, Bill is a tireless advocate for shareholder protection and investor education and is currently the Chairman and lead independent director for the Boston Partners Trust Company. He has previously served as an independent director and audit committee chair for ’40 Act Mutual Funds and other financial services firms. He is also currently an Advisory Board Member of the Certified Investment Fund Director Institute which strives to bring the highest levels of professionalism and governance to independent fund directors around the world. A member of the board of the CAIA Association, Bill also represents CAIA in similar capacities via their global partnerships with other associations and global regulators. Bill began his career as an accountant with PwC and is a designated Audit Committee Financial Expert in accordance with SEC rules. Follow Bill Kelly on Twitter @CAIA_BillKelly