(Note: Read only if you care about my job search and can tolerate a little whining)
Yesterday's WSJ had an article about the investment success of the little-known Kresge Foundation. I don't particularly recommend it, but one sentence caught my eye:
For the past several months I have been engaged in a job search/client search. My goal is to work for a family office, hedge fund consultant, fund of funds, or endowment as an evaluator of PE and hedge funds, either as an employee or consultant.
I've interviewed with quite a few firms, without success. When I've been told "no thank you" the reason I've heard most often is some variation of "We're looking for someone who already has relationships in the industry . . . this industry is all about relationships." Although I worked for one of the best-known hedge funds for four years, and I keep a very close eye on the world of value investing, nevertheless I must confess that I'm not a deep networker, if you know what I mean.
In other words, I don't have the "access" referred to in the quote above. My observation so far suggests that most institutional investors that allocate capital to outside money managers seek to "win" not by being smart enough to identify the best investors (something I claim to be good at), but by having access to those investors who have already been validated as the "best" (something I'm not good at). In the others, the celebrities of the hedge fund and PE worlds.
I'm whining about this for two reasons:
1) A world in which access matters most doesn't do me much good in my job search.
2) If your goal as an institutional investor is to achieve the best risk-adjusted return, which is what it should be, then the "access matters most" strategy is not likely to get you there, for the following reasons:
- The hedge fund and PE celebrities, the ones everyone wants access to, manage way more money than they used to, and size will inevitably hinder their future performance. John Paulson may be a genius, but managing $28 billion and charging hedge fund fees puts his investors at a huge disadvantage. I'd point out, however, that it does not put Mr. Paulson at any disadvantage.
- Money manager celebrities can often be like Hollywood celebrities--famous for one or two years and you never hear from them again. If you can't tell the difference between the John Waynes and the Jean-Claude Van Dammes of the investment world, your superior access won't help you.
That's the bad news for me. The good news is that I have to believe that, somewhere over the rainbow, there exists an institutional investor that either can't or chooses not to play this game. Maybe it's a family office that's too small and unprestigious to matter to the big funds, or an endowment that, like David Swensen's Yale, understands that you can't simply invest where everyone else is investing and hope to get a superior result.
I just have to find them.
(P.S. I'm interested to hear what my readers think. Am I correct in my view of the world of institutional investing, or am I just shell-shocked from rejection? Do my "over the rainbow" investors exist or am I kidding myself? If they do, how do I find them? Thanks)