how many mediocre money managers there are doesn’t matter very much to the price of getting the person with slightly higher (expected) alpha
That’s not self-evident to me. If the supply of money managers increases under the reasonable assumption that the increase is appropriately distributed along the whole skill spectrum, the supply of high-skill managers will increase as well.
the marginal money manager loses money
Huh? The left tail of the money manager distribution loses money, of course, but that’s almost by definition. The average money manager does not lose money. We can argue whether he makes more money than a passive investment in “the market”, but that’s a complicated discussion that involves different markets, risk, etc.
If the supply of money managers increases under the reasonable assumption that the increase is appropriately distributed along the whole skill spectrum, the supply of high-skill managers will increase as well.
Sure, but I explicitly mentioned I was varying the supply of mediocre money managers. What would make you think it’s reasonable to assume that mediocre managers are appropriately distributed along the whole skill spectrum?
I’m specifically poking at the claim that we can tell that we have too few hedge fund managers because they make such high salaries. I think I’m in agreement with Salemicus that some forms of financing are positive sum (and thus provide a valuable social service), that top cognitive talent is heavily influenced by prestige, and that if there were a flatter plateau of extreme competence the salaries would be lower. I’m uncertain whether it’s possible to achieve that by shifting more top talent from academia to hedge funds, since I think that will simply shift what counts as ‘extreme’ competence in that field.
The average money manager does not lose money. We can argue whether he makes more money than a passive investment in “the market”, but that’s a complicated discussion that involves different markets, risk, etc.
I find it remarkable the number of financial concepts you think are complicated that look simple to me and the many experts in economics and finance (who aren’t trying to sell a product) that I’m familiar with.
That’s not self-evident to me. If the supply of money managers increases under the reasonable assumption that the increase is appropriately distributed along the whole skill spectrum, the supply of high-skill managers will increase as well.
Huh? The left tail of the money manager distribution loses money, of course, but that’s almost by definition. The average money manager does not lose money. We can argue whether he makes more money than a passive investment in “the market”, but that’s a complicated discussion that involves different markets, risk, etc.
Sure, but I explicitly mentioned I was varying the supply of mediocre money managers. What would make you think it’s reasonable to assume that mediocre managers are appropriately distributed along the whole skill spectrum?
I’m specifically poking at the claim that we can tell that we have too few hedge fund managers because they make such high salaries. I think I’m in agreement with Salemicus that some forms of financing are positive sum (and thus provide a valuable social service), that top cognitive talent is heavily influenced by prestige, and that if there were a flatter plateau of extreme competence the salaries would be lower. I’m uncertain whether it’s possible to achieve that by shifting more top talent from academia to hedge funds, since I think that will simply shift what counts as ‘extreme’ competence in that field.
I find it remarkable the number of financial concepts you think are complicated that look simple to me and the many experts in economics and finance (who aren’t trying to sell a product) that I’m familiar with.
And why do you think this is so?