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\lfoot{\footnotesize DisruptInvesting.com: Katina Stefanova, David Teten, and Brent Beardsley}
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\begin{document}

\title{Who Will Disrupt Asset Management, and How\\}


 \author{by Katina Stefanova, David Teten, and Brent Beardsley.
\href{http://DisruptInvesting.com\%20}{DisruptInvesting.com}\\}


\date{\today}

\maketitle




\selectlanguage{english}
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\section{About the Authors}\label{about-the-authors}\selectlanguage{english}
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\section{Table of Contents}\label{table-of-contents}

\begin{quote}
The Peculiar Asset Management Industry\\

The Macro Trends Forcing Change on Our Industry\\

The Money Manager of the Future\\

The Jobs To Be Done in Asset Management\\

Terminology\\

Disclaimers and Disclosures\\

Appendix 1: Full List of The Jobs to Be Done in Asset Management\\

Technical Jobs to be Done\\

Functional Jobs to be Done\\

Emotional Jobs to Be Done\\

Appendix 2: The Universe of Investable Assets\\

Contributors\\
\end{quote}

\newpage\selectlanguage{english}
\begin{figure}[h!]
\begin{center}
\includegraphics[width=0.98\columnwidth]{figures/image24/pic1}
\caption{{Picture 1. Current Examples of Disruption in the Investing Industry%
}}
\end{center}
\end{figure}

\begin{quote}
"\emph{One summer day, probably in the 1870's, friends of a major
short-seller got together on the shores of Newport, Rhode Island, where
they admired the enormous yachts of New York's richest brokers. After
gazing long and thoughtfully at the beautiful boats, the short seller
asked wryly, `Where are the customers' yachts?'}''\\

\textbf{\emph{Jason Zweig, in his introduction to Fred Schwed's 1940's
Wall Street classic, ``Where Are the Customers' Yachts -- A Good Hard
Look at Wall Street''}}\\
\end{quote}

If investors complained about Wall Street 140 years ago, they're howling
now. ~\\

Asset management is about to go through a particularly dramatic period
of disruption, for three reasons.~ First, the industry is extremely
profitable, and excess profit pools attract competition.~ According to
\href{https://www.bcgperspectives.com/content/articles/financial_institutions_global_asset_management_2014_steering_course_growth/?chapter=2}{BCG},
total 2014 annual industry profits were \$102 billion globally, flowing
from notably high operating margins of 39\%.~ Second, financial
technology venture capital is exploding: CB Insights
\href{https://www.cbinsights.com/research-pulse-of-fintech-2015}{reports}
that \$19.1b was invested in fintech companies in 2015, vs. \$3.9b in
2013. And third, a number of global trends as well as changes unique to
the asset management industry are coinciding to force change onto even
the most recalcitrant.~ The technology and social revolution,
globalization, the emerging markets' wealth, the increased role of
women, and the millennials' changing tastes are an irresistible force
meeting a moveable object: traditional asset management industry
structure.~\\

When we talk about disruption, we are using the formal definition of
Disruptive Innovation popularized by Harvard professor
\href{https://upload.wikimedia.org/wikipedia/commons/b/b1/Clayton_Christensen_World_Economic_Forum_2013.jpg}{Clay
Christensen}: ``an innovation that helps create a new market and
\href{https://en.wikipedia.org/wiki/Value_network}{value network}, and
eventually disrupts an existing market and value network (over a few
years or decades), displacing an earlier technology.''~ Examples in
asset management include index funds
(\href{http://www.vanguard.com/}{Vanguard}); ETFs
(\href{http://www.ishares.com/}{iShares}); crowdfunding
(\href{http://angel.co}{AngelList}); discount/online brokerages
(\href{https://www.schwab.com/}{Charles Schwab}); and online wealth
management (\href{https://www.wealthfront.com/}{Wealthfront},
\href{https://www.betterment.com/}{Betterment}).~ (See Picture 1).\\

Traditionally, asset management changes slowly.~ Of the \$280 trillion
of investable assets globally, approximately 50\%
(\textasciitilde{}\$140 trillion) is invested in real estate and cash --
which were also the most popular asset classes in the 1800s.~ The next
most popular asset classes are insurance and treasury bonds, which were
disruptors in the 1600s.\\

\section{The Peculiar Asset Management
Industry}\label{the-peculiar-asset-management-industry}

Asset management is a highly unusual and somewhat baffling industry.~ We
see seven main examples of just how peculiar our industry is, relative
to other industries:\\

1. \textbf{The asset management industry collectively plays a}
\href{http://blogs.hbr.org/2013/05/just-how-useless-is-the-asset/}{\textbf{near-zero-sum
game}}\textbf{.~} By contrast, most industries are positive sum: if you
eat a great steak dinner, it doesn't imply that others have to eat
hamburger.~ In asset management, each new Money Manager that is able to
generate Alpha (returns above the passive benchmark performance)
normally does so at the expense of other Money Managers who
underperform.~ Your own investment's value may change because of a
change in value of the underlying asset and/or market preferences.~
However, few investors can impact the value of the underlying asset,
except for typically private equity and venture capital investors.~ And
only celebrity investors like George Soros can influence market
preferences.~ In fact, it is mathematically impossible for the median
investor in a given publicly-traded sector to beat a low-cost index of
that sector, after expenses.~ Money managers playing a positive-sum game
include those who focus on well-developed sectors for which indices are
not readily available (e.g., private companies, frontier markets) and/or
nascent asset classes
(e.g.,~\href{http://www.forbes.com/sites/deborahljacobs/2013/11/22/after-the-gold-rush-domain-names-have-lost-their-glitter/}{internet
domain
names},~\href{https://en.wikipedia.org/wiki/Income_Share_Agreement}{lifetime
individual
income},~\href{http://www.longfordcapital.com/litigation-finance}{litigation}
\href{https://mighty.com/}{finance},~\href{http://ige.com/}{virtual
currencies},~\href{https://en.wikipedia.org/wiki/List_of_cryptocurrencies}{cryptocurrencies},
\href{https://www.google.com/url?sa=t\&rct=j\&q=\&esrc=s\&source=web\&cd=1\&ved=0ahUKEwj1wu2Xr8_LAhXGHT4KHSQuAdQQFggcMAA\&url=http\%253A\%252F\%252Fwww.economist.com\%252Fnews\%252Fbusiness-and-finance\%252F21694473-firms-who-lend-people-seeking-end-marriage-are-attracting-interest-inside\&usg=AFQjCNGQQBXVkDZIizg89ZBX6FVi8Y9oBw\&sig2=kHr7FNMVb-j8HGfABKeVWQ\&bvm=bv.117218890,d.cWw}{divorce
loans},~\href{http://recx.com/}{receivables},~\href{http://icapip.com/}{patents},~\href{http://points.com/}{frequent
flyer miles},
\href{http://www.plantingempowerment.com/timber-investments/}{timber},
\href{http://www.economist.com/news/finance-and-economics/21637379-hardy-investors-are-seeking-way-grow-their-money-barbarians-farm-gate}{farms/ranches},
\href{https://www.gsb.stanford.edu/insights/research-art-good-investment}{art},
\href{http://www.wsj.com/articles/SB10001424127887324662404578330651775508058}{collectibles},
or~\href{http://ctxglobal.com/}{carbon credits}.\\

\textbf{2. The asset management industry rarely delivers the alpha that
it promises.~} Delivering alpha on a net of fees and costs basis
consistently over many years is incredibly difficult. For example, hedge
funds on average have underperformed on a net of fees basis in both US
equities and bonds since 2000.~ Hedge fund performance looks attractive
for the period of 1970 - 2013 (See Picture 2). However, one can argue
that hedge funds were different in the 1980s and 1990s as the industry
was smaller and more nimble.~ Recent hedge fund underperformance,
coupled with steep typical 2\% management and 20\% performance fees and
additional hidden costs that can be charged to fund investors, make
investors more likely to ask questions. ~\\\selectlanguage{english}
\begin{figure}[h!]
\begin{center}
\includegraphics[width=0.98\columnwidth]{figures/image22/image22}
\caption{{Picture 2:~ Relative (Gross \& Net) Hedge Fund Performance Over
Time
[2\baselineskip]%
}}
\end{center}
\end{figure}

\textbf{3. Standard compensation models motivate Money Managers to add
more assets under management, but size often hurts returns.} This
contributes to the `winner take all' trend in which we see steadily
growing concentration of AUM into the largest money managers (See
Picture 3).~ For example, venture capital funds earn on average
\href{http://www.stanford.edu/~piazzesi/Reading/MetrickYasuda2010.pdf.}{two-thirds}
of their compensation from management fees, not carry.~ However, there
is an inevitable tension between size and returns.~ Large hedge funds
over time hit liquidity limits and start impacting market pricing when
they trade, losing their ability to exploit arbitrage opportunities.
Similarly, large VCs earn
\href{http://www.kauffman.org/what-we-do/research/2012/05/we-have-met-the-enemy-and-he-is-us}{lower
returns} than small VCs, who in turn earn
\href{http://techcrunch.com/2012/11/17/how-institutional-limited-partners-can-avoid-limited-returns/}{lower
returns} than angel investors; angels writing small checks have among
the \href{http://teten.com/angel}{highest returns} of any asset class.~
Of course, it is true that large size does create certain proprietary
advantages, e.g., some large fund of funds negotiate preferential
management fees from funds in which they invest.~\\

The largest asset managers capture nearly all net flows into the US
market; net flows to other managers are down significantly.\\\selectlanguage{english}
\begin{figure}[h!]
\begin{center}
\includegraphics[width=0.98\columnwidth]{figures/image20/image20}
\caption{{Picture 3: US Net Cash Flows to Money Managers%
}}
\end{center}
\end{figure}

\textbf{4. Money managers can earn more money at less personal risk than
in most other industries.} Simon Lack reports in
\href{http://www.wiley.com/WileyCDA/WileyTitle/productCd-1118164318.html}{The
Hedge Fund Mirage} that from 1998 to 2010, hedge fund managers earned
\$379 billion in fees, while their investors earned only \$70 billion in
investment gains net of fees.~ In the asset management industry, the
norm is that the General Partner puts in just 1-2\% of the total assets
under management and keeps the remainder of her personal assets in a
diversified portfolio. ~ Some hedge fund managers have even
\href{http://www.fa-mag.com/news/hedge-fund-managers-create-own-family-office-cocoons-23139.html?section=75\&utm_source=PW+Subscribers\&utm_campaign=f0723d908d-PWN_PW+News_092115\&utm_medium=email\&utm_term=0_1899ce8517-f0723d908d-232844625}{set
up their own sophisticated family offices} specifically to diversify
their holdings out of the core product in which they made their wealth.
In contrast, entrepreneurs in most other fields risk a significant
portion of their \href{http://www.entrepreneur.com/article/238319}{own
capital in their new venture}, better aligning incentives.~\\

\textbf{5. The financial services industry, including asset management,
has disproportionate power to create systemic economic risk.} This
negative externality is unique to financial services, and was
particularly obvious in the 2008 financial crisis.~ Similarly, when the
highly leveraged Long Term Capital Management fund collapsed in the late
1990s, sixteen leading financial institutions had to agree on a \$3.6
billion recapitalization (bailout) under the supervision of the Federal
Reserve.~ By comparison, when oil prices doubled between 2009 and 2011,
it created stress for some industries but there was no concern that the
global economy would collapse.~\\

\textbf{6. The
``}\href{http://www.institutionalinvestor.com/blogarticle/3123917/blog/broken-agency-explains-why-asset-managers-lose-institutional-investor-mandates.html\%23.Vjjl-K6rQUE}{\textbf{broken
agency}}\textbf{'' problem can cost money holders far more than the same
problem does in most other industries.} ~ All companies face some form
of the principal-agent problem: The chief executive of a public company
may be tempted to manage financial results to optimize the short term
stock price if a significant portion of her compensation comes from
company stock options. In asset management, the principal-agent problem
is exacerbated by the presence of so many conflicted intermediaries.~
For example, an individual allocator is often motivated to allocate to
the most popular fund or type of investment in which her peers are
investing, to protect for career risk.~ If an allocator hires a known
player, underperformance will not cause the employee's judgement to be
questioned.~ The resulting
\href{http://www.investopedia.com/university/behavioral_finance/behavioral8.asp}{herd
mentality} hurts innovation and leads to suboptimal returns.\\

\textbf{7. The investment management industry is far more}
\href{http://disruptinvesting.com/2015/04/the-looming-talent-crisis-are-hedge-funds-due-for-a-wake-up-call/}{\textbf{homogeneous}}
\textbf{than the clients it serves,} ironically for an industry that
worships ``diversification'' as the one true free lunch.\textbf{~}
\href{http://regender.org/reports-publications/women-fund-management-report}{Only}
10\% of mutual fund AUM and 3\% of hedge fund AUM are managed by women,
and a similarly small percentage is managed by traditionally
underrepresented minorities.~ This, despite the fact that funds run by
women
\href{http://www.theatlantic.com/business/archive/2014/08/hedge-funds-run-by-women-outperform-other-hedge-funds/375542/}{outperform}.~
That outperformance equals the cost of money holder
\href{http://www.paulgraham.com/bias.html}{bias}.~ Distributors (e.g.,
Registered Investment Advisors) also are disproportionately white men of
middle age and older.~ The bias has two other main negative effects.~
First, it limits investors' understanding of the world.~ America alone
will be a majority minority country by 2040, and inevitably consumption
and behavior patterns will evolve accordingly.~ Second, according to
Carol Morley, CEO of the \href{http://www.theimprintgroup.com}{Imprint
Group}:~
``\href{http://www.forbes.com/sites/katinastefanova/2015/04/25/the-looming-talent-crisis-are-hedge-funds-due-for-a-wake-up-call/}{It
is hard to attract top talent if firms are looking at a small slice of
the population and their immediate peer group.}''~\\

\section{The Macro Trends Forcing Change on Our
Industry}\label{the-macro-trends-forcing-change-on-our-industry}

Global tectonic shifts - technology revolution, globalization, the
increased role of women and millennials and a generational turnover
among chief investment officers - are an irresistible force meeting a
moveable object: the traditional asset management industry structure. ~
(See Picture 4 for a summary.)~ Meanwhile, asset management shows the
traditional earmarks of an industry ripe for disruption --- most
obviously, unhappy customers and very profitable incumbents.\\\selectlanguage{english}
\begin{figure}[h!]
\begin{center}
\includegraphics[width=0.98\columnwidth]{figures/image21/image21}
\caption{{Picture 4: Macro Trends Impacting Money Management%
}}
\end{center}
\end{figure}

Our research suggests the the power base will finally shift to Money
Holders from Money Managers. We see four main ways that global economic,
social and political trends are driving this massive power shift:\\

\textbf{Rapid technology innovation is generally positive for most money
holders and will provide an opportunity to differentiate for
intermediaries and money managers}.~ Technology, and specifically the
internet, will drive greater transparency, ease of use, and efficiency,
while creating new opportunities for funds looking to generate alpha.
But technology is neither a panacea nor fault-free, e.g., the 2015
\href{http://www.wsj.com/articles/securities-pricing-problems-hit-u-s-mutual-funds-etfs-1440601913}{Flash
Crash} and Bank of New York Mellon's
\href{http://www.wsj.com/articles/all-night-push-after-glitch-hit-bny-mellon-1441322064}{mutual
fund settlement problems}. Overall, technology will both raise assets
and reduce fees, but it will not be a competitive differentiator on its
own.~ Some startups will target upgrading institutions' investing
process: consider \href{http://earnestresearch.com/}{Earnest Research},
which analyzes transaction data and other non-traditional data sets for
investment research, and \href{http://www.acordiq.com/}{AcordIQ}, a
platform that institutional investors can use to gain better control and
governance of funds they are invested in.~ Other will target
individuals: \href{http://www.longgame.co/}{Long Game} is turning
gamblers into investors.\\

\textbf{A slow growth economy has negative impact on most of the asset
management industry and is forcing accountability on money managers.}
Many of the leading macro investors, including
\href{http://www.npr.org/sections/thetwo-way/2009/08/soros_economy_has_hit_bottom_b.html}{George
Soros},
\href{http://www.profitconfidential.com/economy/ray-dalio-warns-of-economic-collapse/}{Ray
Dalio} and
\href{http://www.thinkadvisor.com/2015/09/30/the-low-growth-world-ahead-vanguards-chief-economi}{Vanguard's
Chief Economist, Joe Davis}, are pessimistic about global growth
outlook. One of the biggest implications for asset management is that
underfunded pension funds will have a difficult time meeting their
return expectations. Another implication is that the large money
managers that collected hefty fees from riding the long term ``beta''
growth wave in the 80s and 90s will have a difficult time justifying ``2
and 20'' fees in a lackluster economy. ~\\

\textbf{As women and millennials become key allocators, they create a
new group of underserved customers with new unmet values and
expectations}. Womens' \$14 trillion in assets today is projected to
reach \$22 trillion by 2020,
\href{http://www.investmentnews.com/article/20130317/FREE/130319918/when-marketing-to-women-be-clear-about-what-you-do}{according}
to a Family Wealth Advisors Council white paper.~ Meanwhile, millennials
are coming of age in the work force. The new decision makers will expect
the industry to reflect both better gender balance and be more
accessible everywhere, and will invest in money managers who do not look
like Warren Buffett.~ Internal diversity forces an organization's
members to question their assumptions more aggressively, think more
deeply, and are less likely to generate bubbles, according to
\href{http://www.sslevine.com/?p=390}{research} by Professor Sheen
Levine. Further, these two groups (women and millennials) tend to invest
differently than the past generation of older
men.~\href{http://spectrem.com/Content/Millennial-Investors-Have-Greater-Concern-Over-Social-Responsibility.aspx}{According
to the Spectrum Group, Millennials}, for example, are both more
risk-averse and more socially conscious than past generations when
selecting investments.~ In addition, having come of age during the
financial crisis, millennials have a negative brand perception of some
of the traditionally dominant financial services companies.\\

\textbf{Geopolitical risk around the world leads to capital flight to
safe havens.} Political volatility is typically not good for savers and
allocators as it tends to destroy asset value. Regional political
instability and the fear of totalitarian regimes exists in China,
Russia, the Middle East, and South America, which now have millions of
well-educated and newly wealthy citizens that look to protect themselves
and their nest eggs.
\href{https://www.imf.org/external/np/speeches/2002/012102.htm}{The IMF
reports} that we are seeing the first net private capital outflows in
emerging markets since 1984. For example, according
to~\href{http://www.bloomberg.com/news/articles/2015-05-07/china-s-capital-outflow-hot-money-cools-on-the-country}{Bloomberg},
money is quietly leaving China at the fastest pace in at least a decade:
an estimated \$300 billion in financial outflows in the six months
through March 2015.~ This is double the capital (\$150 billion) that
exited Russia prompted by the Ukraine crisis. Overall, the economic
outlook in the US is modest, but the country is relatively stable
despite political dysfunction, and remains the most attractive on a
relative basis. Just as immigrants streamed to Ellis Island, the wealth
of the newly prosperous emerging markets will increasingly seek refuge
in the United States, as well as other perceived safe havens such as
Singapore and Switzerland.\\

\section{The Money Manager of the
Future}\label{the-money-manager-of-the-future}

Based on the problems and global trends uncovered in our research, we
outline below the five characteristics that will differentiate the
winning money manager of the future (See Picture 5):\\\selectlanguage{english}
\begin{figure}[h!]
\begin{center}
\includegraphics[width=0.98\columnwidth]{figures/image23/image23}
\caption{{Picture 5: The Five Characteristics of a Successful Money Manager%
}}
\end{center}
\end{figure}

\textbf{Use technology to rebalance value to investors.~} Internally,
money managers are investing in artificial intelligence and big data
capabilities and more seamless integration of front and back office
processes.~ Externally, leaders are building mobile and tablet apps, and
expanding their use of \href{http://teten.com/PE-social}{social media}.~
In the future, innovative models, especially in the retail space, will
integrate investing with elements of social media, interactive gaming
and education. For institutional investors, technology will enable more
proactive risk management and governance.~\\

\textbf{Create and sustain trust through transparency.} As opacity
recedes, money holders will see who has been working with their best
interest at heart. We foresee the doom of the
\href{http://disruptinvesting.com/2015/08/is-the-black-box-hedge-fund-model-doomed/}{black
box hedge fund model}.~
\href{http://disruptinvesting.com/2015/08/is-the-black-box-hedge-fund-model-doomed/}{According
to Amanda Tepper}, CEO of
\href{http://www.chestnutadvisory.com/}{Chestnut Advisory Group},
``investors are increasingly demanding clear, concise and consistent
communication from their asset managers.~ In a recent Chestnut investor
survey, 92\% of respondents said they view investor communication as
integral to an asset manager's mission.'' ~ In addition to investor
demands, money managers must comply with an increasing array of
regulatory requirements.~ That said, regulators have a history of
protecting us from the problems of the last crisis, not the next one.~
As self-protection, we see increasing use of
\href{http://www.forbes.com/sites/katinastefanova/2014/09/18/is-your-money-safe-risk-management-blindspots-that-cost-investors-dearly/}{self-regulation}.~
For example, some private investment firms will establish active
executive boards similar to public companies, to give money holders and
intermediaries comfort that decisions are being made thoughtfully and to
create checks and balances on the historically all-powerful or cult
CIO.~ We expect the current largely manual and sporadic due diligence
process to be revamped to include more systematic, ongoing oversight and
governance. ~\\

\textbf{Manage integrated risk, not risk in separate silos.~}
\href{http://disruptinvesting.com/2014/09/is-your-money-safe-risk-management-blindspots-that-cost-investors-dearly/}{The
traditional view} segregates risk into market, credit, and operational
and buckets.~ For example, in the classic org chart, the Investment
Officer is responsible for market risk; the Treasury Officer or CFO for
counterparty risk; and the COO for operational risk.~ However, risk is
not additive or linear, and often hot spots in one area may cause
undetected issues. The money manager of the future will learn to look at
risk holistically and pay attention not just to lagging indicators
(losses) but to leading indicators (talent retention, investment in
infrastructure, succession planning).~\\

\textbf{Generate new sources of alpha.~} The preference for alpha
generation based on security selection, i.e., ``stock picking'', has
transitioned to alpha generation based on fund manager selection, which
has transitioned to alpha generation based on asset allocation - both
strategic as well as tactical.~ The best opportunities for alpha
generation at the security and fund level, e.g., special situation or
frontier markets, are shrinking over time.~ We envision that the ability
to allocate in an agile way across multiple asset classes will be a
differentiator - across both public as well as private / illiquid
assets, such as private equity or real estate.~ We also envision more
aggressive use of activist investing, broadly defined.~ In the world of
private equity and venture capital, the equivalent of an activist
strategy are those investors with a
\href{http://teten.com/VC-consulting}{portfolio acceleration} toolkit,
typically including experienced operating executives and a set of
preferred operational service providers.~\\

~\\

\textbf{Invest in talent and culture as the critical foundation.}~\\

~\\

\begin{quote}
\emph{``If you want to build a ship, don't drum up people to collect
wood and don't assign them tasks and work, but rather teach them to long
for the endless immensity of the
sea.''~\href{http://www.brainyquote.com/quotes/authors/a/antoine_de_saintexupery.html}{Antoine
de Saint-Exupery}}\\
\end{quote}

The investment industry is today very immature in its human capital
management, with high turnover, minimal succession planning, and a
strikingly homogeneous work force. As founders age and investor
demographics change, the established investment firms will face
a~\href{http://www.forbes.com/sites/katinastefanova/2015/04/25/the-looming-talent-crisis-are-hedge-funds-due-for-a-wake-up-call/}{talent
crisis} and will have to rethink how to attract, develop and retain
talent.~ ``Purpose-driven companies,'' says Jeff Hunter, CEO of
\href{http://talentism.com/}{Talentism}, ``are more likely to have
employees who exhibit cohesive behavior and act in the best interest of
the company and the investors.''~ Thus, we foresee a professional CEO
role emerging in asset management: She will be fully focused on
leadership as distinct from the traditional CIO and VP of Sales.~ It's
worth noting that some of the leading asset management firms, including
D.E. Shaw and Blue Mountain, are leading the way by being very proactive
and mindful about managing their culture and principles.\\

\section{The Jobs To Be Done in Asset
Management}\label{the-jobs-to-be-done-in-asset-management}

Christensen popularized the idea of analyzing a company by looking at
the
``\href{http://www.christenseninstitute.org/key-concepts/jobs-to-be-done/}{Jobs
to Be Done}'' needed by its clients.~ Most money managers think their
main job is returns, but they are wrong.~
\href{http://disruptinvesting.com/2015/08/is-the-black-box-hedge-fund-model-doomed/}{According
to Amanda Tepper}, CEO of
\href{http://www.chestnutadvisory.com/}{Chestnut Advisory Group}:
``contrary to conventional wisdom, investment performance alone does not
drive asset flows. While there is a clear relationship between the two,
investment performance accounts for only about 15\% of the reason for
placing money with managers. We found (very low) correlations between
trailing three-year returns (the primary metric most institutional
investors follow) and subsequent one-year net capital inflows.''\\

Managers will still have to cover the basics like meeting return
expectations at the right risk levels with the proper internal controls
(the technical jobs to be done). The true opportunity set, however, lies
in connecting deeply with investor needs (their functional and emotional
jobs to be done).~ The winners in asset management need to provide
targeted customization at scale (a functional job).~ See Picture 6 for a
summary, and see Appendix 1 for a detailed discussion of the jobs to be
done in asset management.\\\selectlanguage{english}
\begin{figure}[h!]
\begin{center}
\includegraphics[width=0.98\columnwidth]{figures/image19/image19}
\caption{{Picture 6: The Hierarchy of Jobs to be Done%
}}
\end{center}
\end{figure}

Jobs to be done must incorporate technical, functional, and emotional
benefits.\\

A money manager must do all of the technical jobs at an acceptable level
just to get in the game.~ At a minimum, investors require money managers
to be able to deliver risk-adjusted alpha at lower cost.~ We see
possible disruptions where funds are highly leveraged, high volatility
and highly concentrated. These funds cannot meet the minimum level of
technical proficiency and cannot withstand withdrawals during
significant down years. We see the average lifespan of a hedge fund is
\href{http://ftalphaville.ft.com/2014/07/31/1913792/most-hedge-funds-fail/}{5
years; within a three-year period about one-third of hedge funds
disappear}.~\\

The cookie cutter approach to money management is no longer adequate.
Today's investor base is global and diverse along culture, gender and
demographic lines driving unique investments needs. As a result, money
managers will have to be able to adapt their business models and offer
appropriately scaled service levels at the right cost.~\\

Jobs at the emotional level create a deep connection with investors and
lead to enduring relationships and improved economics through lower
churn for managers and allocators alike. The ability to do the emotional
jobs well can transform an asset manager into an institution - likely to
scale and to stay in business for the long-term.~ We have found that
customers may not clearly express or even openly admit that they value
``emotional jobs'' at the same level or higher to well known functional
jobs.~ However, the money managers that perform these jobs well - jobs
that may be more ``social'' or ``experiential'' - will consistently
attract more assets. ~\\

\begin{itemize}
\tightlist
\item
  \textbf{Customer service is critical for both retail and institutional
  investors.~} ~\\
\end{itemize}

Investors look for money managers with ability to make sense of the
cacophony of information and disparate investment advice. Further, they
need highly customized and often personalized help to shape their
investment strategy, sorting signal from the noise. The high importance
money holders place on customer service, therefore, calls into question
the viability of technology-only investment platforms and the black box
hedge fund model of
``\href{http://disruptinvesting.com/2015/08/is-the-black-box-hedge-fund-model-doomed/}{give
me your money and wait for your annual report.''} In the institutional
space, \href{http://www.bwater.com/}{Bridgewater} has a
``bend-over-backwards-for-clients'' internal culture. Bridgewater offers
both large, highly skilled client service teams and a proprietary
analytics team. The client service teams are staffed with professionals
capable for being portfolio managers in their own right, while the
analytics research is provided to clients at no extra charge. In the
retail space, in addition to expertise, investors value empathy in their
financial advisors:
\href{http://www.forbes.com/sites/russalanprince/2015/04/01/what-clients-value-in-their-financial-advisors/}{``An
empathetic financial advisor is one who truly listens to clients,
ensuring they feel understood and who demonstrate that they care.''}~
\href{https://www.linkedin.com/in/joseph-w-reilly-jr-b1a65065}{Joseph
Reilly Jr.}, a private wealth advisor in Greenwich, Connecticut, says
that advising people about money is being ``part financial expert, part
shrink, part friend and confidant, and part entertainer.''\\

\begin{itemize}
\tightlist
\item
  \textbf{Investors want transparency into what is actually happening
  with their money.} As the Millennials begin to invest their own funds
  or become CIOs at asset allocators, they will expect the same ``at
  your fingertips'' accessibility to their portfolio that they now have
  from their Facebook account. Some money managers are beginning to
  adjust: \href{http://ark-invest.com/}{ARK Invest} offers several ETFs
  with near-real-time exposure of their individual trades.~ Goldman
  Sachs recently announced that it will share some of its
  \href{http://www.wsj.com/articles/goldman-sachs-to-give-out-secret-sauce-on-trading-1439371800?mod=WSJ_article_EditorsPicks_1}{secret
  trading sauce} with its clients. ~\\
\end{itemize}

Regulatory requirements and painful past experiences in money management
(e.g., Madoff and other high profile frauds) have put transparency high
on the priority list for institutional investors as well.~ According to
the
\href{http://topics.nytimes.com/top/reference/timestopics/organizations/c/california_public_employees_retirement_system/index.html?inline=nyt-org}{New
York Times}, ``Earlier this year, a senior executive of the California
Public Employees' Retirement System, the country's biggest state pension
fund, made a surprising statement: The fund did not know what it was
paying some of its Wall Street managers.'' The investment agreements
that institutional investors often give enormous leeway to managers to
pass questionable costs on to their investors.. Recently, the Carlyle
Group passed on their limited partners the cost of
\href{http://www.nytimes.com/2014/10/19/business/retirement/behind-private-equitys-curtain.html?_r=0}{a
\$115 million settlement of a insider trading lawsuit} - clearly a
failure of its own internal management. The opacity of these
arrangements creates an opportunity for companies such as
\href{http://www.vitrio.com.br/}{Vitrio},
\href{http://www.novus.com/}{Novus}, and
\href{http://www.acordiq.com}{AcordIQ} which provide technology
platforms to institutional investors for systematic oversight of fund
managers. Scott Evans, CIO of the New York City Retirement Systems, one
of the largest public pension systems in the US, and other industry
leaders are beginning to establish best practices around a revamped
due-diligence and ongoing governance process to increase their insight
and systematically build transparency in their investment programs.\\

\begin{itemize}
\tightlist
\item
  \textbf{Money holders want to learn how to be better investors:} The
  under-resourced and often ``relatively'' underpaid institutional
  investor, the family office, and the smaller retail investor all find
  it difficult to keep current with market trends.~ They may have little
  understanding of the arms race around esoteric asset packaging rampant
  on Wall Street, or how high frequency trading actually affects the
  market.~ It falls to money managers to educate investors on how new
  strategies work, although potential conflicts of interest abound.~ The
  fastest growing sector in investment research for the last two decades
  are
  \href{http://teten.com/blog/category/industry/expert-networks/}{expert
  networks}, e.g., \href{http://glg.it}{GLG}.~ These networks displace
  what some managers considered their investment edge -- a proprietary
  group of expert relationships built up over years in the business. The
  expert networks offer direct access to experts on any possible
  category for on-the-fly education.~ Northern Trust's private wealth
  practice has built an analytical platform that educates high net worth
  individuals about designing customizable portfolios specific to their
  unique circumstances. Both these companies are strengthening the
  decision-making capabilities of their clients.\\
\end{itemize}

\begin{itemize}
\tightlist
\item
  \textbf{Investors increasingly desire to put their money where their
  heart is - whether it is based on social consciousness, religious
  views or a hobby:} According to Patrice Viot Coster, COO of AXA
  Investment Managers Research: ``People may want to express openly who
  they are through their investments: I am what I invest.'' We do not
  mean the philanthropic activities of hedge fund billionaires, but the
  general desire of the average investor to positively impact the world
  through their investments.~ Social impact or ``green'' bonds offer a
  creative way for investors to invest in companies offering returns
  linked to achieving certain defined social impacts. ~ \textbf{}
  Religious institutions (e.g., the Catholic Church and Mormon Church)
  and religious individuals/family offices look for investments that are
  compliant with their religious views.~ For example, consider Omar
  Bassal, head of asset management for
  \href{http://www.masic.com.sa/}{MASIC}, a shariah-compliant family
  office based in Saudi Arabia.~ He structures investments in public
  equity, private equity and real estate to comply with Islamic
  restrictions regarding business activities and interest, among other
  things. At the hobby end of the spectrum, some investors buy Berkshire
  Hathaway stock just to get an invitation to their annual meeting.~
  This is also true of those who put money into art, wine, jewelry,
  antiques, stamps, or even a sports team. These investments are often
  more for personal utility than financial investments. We see empty
  nester Baby Boomers in the West and nouveau riche in Russia and China
  driving up the value of these
  ``\href{http://www.ft.com/intl/cms/s/0/aca193f8-5850-11e4-a31b-00144feab7de.html\%23axzz3j7jxhznB}{passion
  investments}.''\\
\end{itemize}

That is not to say that all disruptive opportunities exist only in the
emotional realm. In the retail space, investors have technical
requirements - from wealth transfer to estate planning - that are
broadly served by the private wealth managers. Interestingly, we found
three specific functional needs that stand out as an underexplored
opportunities for emerging disruptors:\\

\begin{itemize}
\tightlist
\item
  \textbf{Retail investors increasingly care about how much money they
  take home, not the gross return - before taxes \& fees - reported on
  their investment statement.~} Poorly managed taxes and transaction
  costs can
  \href{http://disruptinvesting.com/2014/10/how-taxes-and-trading-costs-kill-investment-returns/}{kill
  investment returns}.~ As protection, robo-advisors provide automatic
  tax loss harvesting to help investors minimize taxes. Some specific
  investment instruments also aim to minimize taxes, e.g., life
  insurance for inheritance planning and municipal bonds are
  tax-advantaged products. An emerging manager,
  \href{http://disruptinvesting.com/2014/10/how-taxes-and-trading-costs-kill-investment-returns/}{Greenline
  Partners, offers a risk parity model} not common among money managers
  serving institutions. The Greenline solution focuses on tax
  minimization by understanding the long term impact of deferring taxes
  and overlaid with a unique tax loss harvesting methodology.\\
\end{itemize}

\begin{itemize}
\tightlist
\item
  \textbf{Helping savers apply self discipline is also a simple but
  effective way to add differentiation.~} Just as with losing weight,
  there is no shortcut to amassing investable assets. Money holders need
  to start by putting money aside, which requires discipline. There are
  business models that encourage such discipline, including certain
  retirement pools, e.g., 401Ks, which charge penalties for early
  withdrawal.~ This has two benefits: it allows the money manager
  responsible for the 401Ks to make long-term investments, and it also
  increases the likelihood that the retail investor will have more money
  for retirement.~ Many advisors automatically withdraw each month an
  investment allowance from their customers' bank account.\\
\item
  \textbf{Thematic investing takes the guesswork out of the equation:}~
  Traditional investment consultants offer very granular tools to
  diversify along the investment spectrum.~ \textbf{\emph{}} Today, some
  money managers offer highly targeted funds for money holders who want
  carefully defined target sector exposure. ~ For example,
  \href{https://www.motifinvesting.com/}{Motif Investing} enables
  individuals to invest in a given theme (a ``motif''), e.g., all stocks
  that benefit from a theme of the `connected car'.~ Investors can
  effectively custom-design their own fund according to any theme that
  they believe in. ~ Investors may also look for target exposure to
  markets that they cannot easily trade, such as frontier markets which
  may not be open to regular investors.~ for example,
  \href{http://www.himalayacapital.com/}{Himalaya Capital} offers access
  to Chinese Equities. Shehzad Janab's \href{http://www.daman.ae/}{Daman
  Investments} hedge fund provides access to the UAE market. These
  targeted opportunities can, at times,
  \href{http://www.forbes.com/sites/katinastefanova/2015/10/11/how-to-invest-in-frontier-markets/}{outperform
  developed markets}. However, investors should be prepared to accept
  local economic risk, political risk, low liquidity and well as lack of
  diversification within the themes.\\
\end{itemize}

At the institutional level, separately managed accounts and special
purpose investment vehicles are gaining popularity as two ways to meet
allocators technical or functional needs.~ For this group of investors,
often with substantially divergent investment needs, we note two
pressing needs:\\

\begin{itemize}
\tightlist
\item
  \textbf{Pension funds and endowments struggle to match liabilities and
  obligations.~} Institutional investors, in particular, do not care
  about the highest return \emph{per se}, but want assurance that they
  can meet their financial obligations.~ This is particularly true for
  retirees as well as many institutional investors such as pension funds
  and endowments. This functional need is dominating internal
  conversations at investors that are working to meet long term
  obligations. Bond funds, a traditional source of cash flows for asset
  \& liability matching, clearly struggle to offer critical returns in
  low or near-zero interest rate environments. Alternatively, commercial
  and multi-family real estate funds, which provide a blend of annual
  dividend-like payments and opportunity for appreciation at exit, have
  also become a popular investment for liability matching.\\
\end{itemize}

\begin{itemize}
\tightlist
\item
  \textbf{Political and ``public good'' goals rank high on the agenda of
  government-owned money managers.}~ Special interests, preservation of
  power, and economic development goals can all be part of government
  investor agendas at city, state and federal levels. Such investors may
  have defined public service goals, e.g., invest in companies in their
  home state or support minority owned businesses.~ Similarly, sovereign
  funds in the Middle East look for ways~ to invest locally in
  industries that decrease their dependence on the energy sector.~ Yet,
  we see few money managers that specifically target the unique needs of
  these public or quasi-public managers on these dimensions.\\
\end{itemize}

\textbf{A Call to Action For Both Disruptors and Incumbents}\\

In
``\href{http://www.shareholderforum.com/access/Library/20140908_InstitutionalInvestor.htm}{The
New Dawn of Financial Capitalism},'' Ashby Monk writes that the
standards in the asset management industry have fallen so low that
``doing good for investors means not doing anything bad.'' The storm our
industry is experiencing is blowing windows open for disruptors to
exploit.\\

The incumbents that weather these changes most successfully will be the
ones that do not just sit back and wait for these disruptions passively,
but instead those that identify the trends to which their strengths play
best, and actively pursue strategies to turn those imminent disruptions
from threats to opportunities.\\

In our research, four significant opportunities for disruption stand
out. In each, we see substantial room for value creation:\\

\textbf{1. Despite emerging innovation, retail investors remain the most
ill-served group in asset management.~} Few quality investment
opportunities exist for individuals with less than \$1 million in net
worth, and yet these investors represent a \$147 trillion market
globally. We see many models focused on this niche, including
robo-advisors and social trading firms such as
\href{http://www.ayondo.com/}{Ayondo},
\href{https://www.collective2.com/}{Collective2},
\href{http://www.etoro.com/}{EToro},
\href{http://www.sprinklebit.com/}{Sprinklebit},
\href{http://www.zignals.com/}{Zingals}, and
\href{http://www.zulutrade.com/}{Zulutrade}. Other emerging disruptors
in this space include \href{https://artivest.co/}{Artivest} and
\href{http://www.franklinsquare.com/}{Franklin Square Capital Partners},
which offers retail investors direct access to hedge funds which
historically individuals could not access.~ The typical user experience
of playing a video game is engaging, addictive, and fun; the typical
user experience of investing is not.~ The financial services industry
can do more to learn from the engagement models of the consumer internet
space.\\

\textbf{2. Incentives need to be better aligned so that more value
accrues to the ultimate beneficiaries, e.g., the retired employees,
public servants, and taxpayers.} Money holders repeatedly shared that
they are willing to pay for true alpha performance.~ However, they are
troubled when they end up paying disproportionate management fees and
hidden costs regardless of performance.~ Under pressure from regulators,
Blackstone Group LP recently
\href{http://www.bloomberg.com/news/articles/2014-12-31/blackstone-opens-up-about-hidden-fees-as-sec-pushes-transparency}{disclosed}
that it could collect as much as \$20 million annually from investors
and companies in one of its buyout funds for services such as healthcare
consulting and bulk purchasing.~ In response, leading public investors
including \href{https://www.calpers.ca.gov/}{CALPERS} and
\href{http://www.osc.state.ny.us/retire/}{New York State} are aiming to
uncover the hidden fees in their portfolio by augmenting their due
diligence and governance processes. New types of intermediaries and
industry consortium can support institutional investors, family offices
and retail investors in uncovering the true cost structure in their
funds. Ultimately, we believe this will help these allocators make
better decisions on who to invest with and for how long.~ Creating and
enforcing an industry-wide set of standards and benchmarks (such as the
\href{http://ilpa.org/ilpa-standardized-reporting-templates/}{ILPA
standards}) will further help. ~\\

An even more radical, but common sense idea is to create business models
that better align incentives of the money manager with the incentives of
the investors. A rare example of such a business model, in an industry
where money managers get paid billions even when investors lose money,
is \href{https://www.adagecapital.com/}{Adage Capital}. This \$23
billion hedge fund pioneered the
\href{http://www.wsj.com/articles/giant-hedge-funds-radical-idea-performance-guaranteed-or-your-money-back-1441858527}{approach}
of being paid only for alpha generation, i.e., Adage receives
performance fees when they outperform the benchmark, and return money to
investors when they miss the mark.~\\

\textbf{3. Helping the significantly underfunded US pension funds, who
are unlikely to close their asset and liability gap, may require
wrenching political reform.}~ Liability matching is a forefront concern
for both the \$12 trillion defined benefit (DB) pension system and the
US government.~ The
\href{http://www.ft.com/intl/cms/s/0/c1eb1492-271b-11e5-bd83-71cb60e8f08c.html\%23axzz3hmVZEx9s}{IMF
has warned} that the drastic underfunding of US pension funds poses
systemic risk to the global economy. At the opposite end of the
spectrum, the emergence of defined contribution (DC) plans have shifted
the market risk from the corporation to the individual, and
simultaneously led to some uncomfortable
\href{http://www.ai-ciodigital.com/ai-cio/june_2015\%23pg62}{questions}
to be asked about the quality of investment options available in
corporate 401k plans, for example. An emerging pain point is balancing
the needs of employees in one firm benefiting from a DB plan vs. those
on a DC plan, without making either side feel disadvantaged. ~\\

A unique opportunity exists to help pension funds manage Defined Benefit
and Defined Contribution plans simultaneously for the employees of one
given employer, with consistent transparency and governance, as the
industry evolves from the former to the latter. Some of the leading
administrators are aiming to develop such an integrated platform.\\

\textbf{4. A mass transition to a new generation of managers needs to
happen without disruption to the system.~} The money manager owner class
is disproportionately near retirement age.~ According to
\href{http://theimprintgroup.com/}{Imprint Group},
``\href{http://disruptinvesting.com/2015/04/the-looming-talent-crisis-are-hedge-funds-due-for-a-wake-up-call/}{one
third of assets currently managed are managed by men over the age of
60}''.~ This creates a challenge in talent retention (because junior
people see their path blocked); succession planning (when their path
eventually gets unblocked); and eventually in business continuity.~ For
example,
\href{http://www.businessinsider.com/everyone-thinks-its-really-weird-how-chris-shumway-suddenly-up-and-closed-his-hedge-fund-2011-2}{Chris
Shumway's} botched transition out of his hedge fund lead to huge
simultaneous redemptions, followed by fire sales, and eventually the
closure of an highly successful \$8 billion hedge fund. In some
instances, audit and risk oversight companies and technologies that help
limited partners monitor founder partner departure risk can add value.
But in many cases, they are monitoring stasis without understanding the
internal leadership dynamics that will make or break these sensitive
discussions.\\

Emerging money managers that can scale and innovate to provide the full
spectrum of ``jobs to be done'' - technical, functional \emph{and}
emotional - will thrive in the future. These managers will not only
embrace the professionalization of their own management teams, their
economics will also benefit from capital fleeing managers who failed in
their leadership challenges, particularly succession planning. The
failure of Castle Harlan - a private equity firm with a 28 year track
record - to transition its leadership economics exemplifies the risk of
botched talent management. There is an emerging niche of service
providers which help existing money managers grow their own leadership
capacity and effectively manage the transition to a new generation of
leaders. These management skills, the firms that develop them, and the
firms that embrace them throughout their culture will be much in demand
going forward.~\\

\section{Terminology}\label{auto-label-section-760733}\selectlanguage{english}
\begin{figure}[h!]
\begin{center}
\includegraphics[width=0.98\columnwidth]{figures/image12/terms}
\caption{{Picture 7. Defined Terms%
}}
\end{center}
\end{figure}

\section{Appendix 1: Full List of The Jobs to Be Done in Asset
Management}\label{appendix-1-full-list-of-the-jobs-to-be-done-in-asset-management}

\textbf{\emph{Technical Jobs to be Done}}\\

A Money Manager must do all of the functional Jobs below at an
acceptable level just to be in business.~ The bare minimum Functional
Jobs investors required from Money Managers is to optimize the risk
adjusted return or the Sharpe ratio of the investment. Thus investing is
a constant trade off between ``make more money'' and ``do not lose
money.''\\

\textbf{Don't lose money.}~ As Daniel Kahneman documents
in\href{https://en.wikipedia.org/wiki/Thinking,_Fast_and_Slow}{\emph{Thinking
Fast and Slow}}, people hate to lose money more than they care about
making money.~ Even aside from the emotion, some institutional investors
and many individuals (e.g., those close to retirement) have a structural
imperative to hate losses more than they value gains.~ Sophisticated
Money Holders understand that sometimes they are going to lose money.
However, they expect Money Managers to have clear reasons and to perform
within the expectations of their investment strategy, as well as to make
money overall over time. Smart Money Managers address this need by
focusing on risk adjusted return offerings, and articulating the
tradeoff between risk and returns.~ For example, Bridgewater's Pure
Alpha strategies allows investors to select different volatility levels
based on their risk preference. Goldman Sachs Asset Management and
Pacific Investment Management Company, LLC offer similar strategies.~
\href{http://exceedinvestments.com/}{Exceed Investments} offers a set of
index funds whose market differentiation is a structure to minimize the
odds of a loss beyond a defined limit. ~\\

An example of a vulnerable category of funds which does not do this Job
well: Highly leveraged, high volatility, high concentration hedge funds,
which cannot withstand withdrawals during significant down years. The
average lifespan of a hedge fund
is\href{http://ftalphaville.ft.com/2014/07/31/1913792/most-hedge-funds-fail/}{5
years; within a three-year period about one-third of hedge funds
disappear}.\\

\textbf{Make more money.}~ Some investors look to optimize for highest
returns above all over time.~ These are typically ultra high net worth
individuals or sovereign wealth funds that can tolerate volatility for
long periods of time.~ Such investors might invest in the most nascent
of asset classes, e.g.,
~\href{http://www.forbes.com/sites/deborahljacobs/2013/11/22/after-the-gold-rush-domain-names-have-lost-their-glitter/}{internet
domain
names},~\href{https://en.wikipedia.org/wiki/Income_Share_Agreement}{lifetime
individual
income},~\href{http://www.longfordcapital.com/litigation-finance}{litigation
finance},~\href{http://ige.com/}{virtual
currencies},\href{https://en.wikipedia.org/wiki/List_of_cryptocurrencies}{cryptocurrencies},~\href{http://recx.com/}{receivables},~\href{http://icapip.com/}{patents},~\href{http://points.com/}{frequent
flyer miles},
~\href{http://www.plantingempowerment.com/timber-investments/}{timber},
~\href{https://www.google.com/url?sa=t\&rct=j\&q=\&esrc=s\&source=web\&cd=9\&cad=rja\&uact=8\&ved=0ahUKEwjEhcPN57TKAhXG9h4KHVWvAEoQFghYMAg\&url=http\%253A\%252F\%252Fwww.economist.com\%252Fnews\%252Ffinance-and-economics\%252F21637379-hardy-investors-are-seeking-way-grow-their-money-barbarians-farm-gate\&usg=AFQjCNForTwZDEQ4qY-l3KJFw1twF9ByeA\&bvm=bv.112064104,d.dmo}{farms
and
ranches},~\href{https://www.google.com/url?sa=t\&rct=j\&q=\&esrc=s\&source=web\&cd=6\&cad=rja\&uact=8\&ved=0ahUKEwikv9Xa57TKAhUE9h4KHTqyAHoQFghJMAU\&url=https\%253A\%252F\%252Fwww.gsb.stanford.edu\%252Finsights\%252Fresearch-art-good-investment\&usg=AFQjCNHWeII6MSEUDM_qF_JQRDTcGJyxjA\&bvm=bv.112064104,d.dmo}{art},~\href{https://www.google.com/url?sa=t\&rct=j\&q=\&esrc=s\&source=web\&cd=3\&cad=rja\&uact=8\&ved=0ahUKEwizx6fl57TKAhWI2B4KHdkpDE4QFggqMAI\&url=http\%253A\%252F\%252Fwww.wsj.com\%252Farticles\%252FSB10001424127887324662404578330651775508058\&usg=AFQjCNFSH4yxdiLour5MEpLsdtWwaGOLXA\&bvm=bv.112064104,d.dmo}{collectibles},
or~\href{http://ctxglobal.com/}{carbon credits}.~ Fund managers that
optimize for high returns over other Jobs include activist investors
such Bill Ackman at Pershing Square and Bruce Berkowitz at Fairholme
Funds.~ At a Boys \& Girls Harbor Investment Conference, Bill Ackman and
Ray Dalio debated the merits of each other's strategies; Dalio warned
that Ackman's investment strategy poses
``\href{http://blogs-images.forbes.com/antoinegara/files/2014/11/Ackman-e1416237976103-1940x1089.jpg}{risk
of ruin}''.~ Warren Buffett's value-focused Berkshire Hathaway also
optimizes for returns, and may accept as a result short term
underperformance. ~\\

Particularly in their earlier years, all of these investors offered
relatively poor diversification.~ Ackman, Berkowitz, and Buffett would
all argue that there exist great stock pickers who can beat the market,
but such investors only have a few good ideas per year, so therefore
they should make only a few trades per year. ~\\

Similarly, angel investing is the highest-returning asset class we're
aware of, with median returns of~\href{http://teten.com/angel}{18\% to
54\% across 12 academic studies}, but offers very poor liquidity,
transparency, and predictability. ~\\

Thus to get highest returns, Money Holders have to tolerate likely short
term volatility, lack of liquidity, and/or lack of diversification. ~\\

\textbf{Charge minimum fees and expenses.~} Recent Money Manager
underperformance, the low growth economic environment, and underfunded
pension funds all force Money Holders to pay more attention to fees.~
Vanguard is the role model and king of the low expense Money Manager
industry, both because of their focus on indices which require minimal
research, and their highly unusual status as a Money Manager which
is~\href{https://about.vanguard.com/what-sets-vanguard-apart/why-ownership-matters/}{owned
by its own funds}.~ ETFs (BlackRock iShares) are another way to
dramatically lower expenses.~ Discount brokers
like~\href{https://www.schwab.com/}{Charles Schwab}
and~\href{https://www.tdameritrade.com/}{TD Ameritrade} were disruptive
in their day to full service brokers; many believe robo-advisors are the
modern equivalent.\\

There is room for new businesses that shed light on the true costs and
expenses of fund management.~ While hedge fund and private equity funds
typically report management fees and performance fees, there is little
transparency around other fees charged to funds such as legal,
compliance, entertainment, custodian, and even middle office, which can
add up to up 100 basis points.~ Companies such
as~\href{http://www.novus.com/}{AcordIQ},~\href{http://addepar.com}{Addepar},~\href{http://www.novus.com/}{Novus},
and~\href{http://www.vitrio.com.br/}{Vitrio}~help aggregate and expose
the costs embedded in a fund as part of holistic portfolio governance.\\

\textbf{\emph{Functional Jobs to be Done}}\\

Certain Money Holders have unique needs which create windows for new
business models to emerge.\\

\textbf{Protect my job security.~ ``}No one ever got fired for buying
IBM.'' ~ Institutional investors tend to cluster-invest in the same
large funds, even though
many~\href{http://www.ft.com/intl/cms/s/e4d16a68-2c7c-11e5-acfb-cbd2e1c81cca,Authorised=false.html?siteedition=intl\&_i_location=http\%253A\%252F\%252Fwww.ft.com\%252Fcms\%252Fs\%252F0\%252Fe4d16a68-2c7c-11e5-acfb-cbd2e1c81cca.html\%253Fsiteedition\%253Dintl\&_i_referer=\&classification=conditional_standard\&iab=barrier-app\%23axzz3j7jxhznB}{studies}
show that small funds consistently outperform large funds. This could be
because allocators all want access to the best funds.~ On the other
hand, it could be argued that there is less career risk if allocators
follow the crowd and invest in the same funds their peers select;
~\href{http://www.institutionalinvestor.com/Article/3284699/Asset-Management-Macro/Career-Risk-Is-One-of-the-Biggest-Enemies-of-Alpha.html\%23.VdKA1vlVhBc}{career
risk is one of the biggest enemies of alpha}.\\

\textbf{Inflation protection.~} Today we live in a low inflation
environment and some economists argue that we are entering a
deflationary period.~ However, that was not always the case, and
unlikely to be always the case.~ Inflation-linked (IL) bonds, real
estate, and commodities provide an inflation hedge.~ In some markets
used to high inflation such
as~\href{http://www.firstpost.com/business/india-pips-china-worlds-biggest-gold-consumer-2014-2096495.html}{China
and India}, Money Holders choose to put a significant portion of their
wealth into gold. Notably, the demand for gold in India and China is
also driven by cultural preferences as well; see Experiential Needs
below.\\

\textbf{Provide diversification.}~ The ultimate diversification is to
own an index of the entire market, but of course then tautologically you
will only get market returns.~ The traditional diversified portfolio is
the 60\%/40\% equities bond mix.~ Alternatively the risk parity model is
a typically passively managed portfolio that performs well in most (but
not all) economic environments - growth, inflation and deflation.~ A
number of funds offer such an option: The institutional market is
dominated by Bridgewater's All Weather (\textasciitilde{}\$90bln), AQR
Risk Parity fund (\textasciitilde{}\$25bln) and Invesco Balanced Risk
Allocation (\textasciitilde{}\$20bln); Greenline Partners' Tax Efficient
Risk Balanced approach is an emerging manager in the family office
space.~ However, investors need to think about diversification
holistically beyond just investing in public markets, i.e., how to
incorporate venture capital and real estate or even art in their
portfolio.~ We see few solutions in the market-place that allow for true
diversification across both public and private markets.\\

\textbf{Minimize taxes.}~ Life insurance is a tax-protected way to
protect your heirs' interests.~ Puerto Rico marketed its bonds as
``triple tax free'' (exempt from federal, state and local income taxes),
which made them very attractive, until Puerto Rico admitted they could
not actually pay them off.~
\href{http://disruptinvesting.com/2014/10/how-taxes-and-trading-costs-kill-investment-returns/}{Greenline
Partners offers a risk parity model}, not common among Money Managers
serving institutions, which focuses on tax minimization by understanding
the long term impact of deferring taxes and overlaid with a unique tax
loss harvesting methodology.~ Some robo-advisors provide automatic tax
loss harvesting to help investors minimize taxes as well.\\

\textbf{Provide access to specific sectors.}~ Traditional investment
consultants offer very granular tools to diversify along your axis of
choice.~ \emph{} Some Money Managers offer highly targeted funds for
Money Holders who want carefully defined target sector exposure. ~ For
example,~\href{https://www.motifinvesting.com/}{Motif Investing} enables
individuals to invest in a given theme (a ``motif''), e.g., all stocks
that benefit from a theme of the `connected car'.~ Investors can
effectively custom-design their own fund according to any theme that
they believe in. ~ Investors may also look for target exposure to
markets that they cannot easily trade, such as frontier markets which
may not be open to regular investors.~
So~\href{http://www.himalayacapital.com/}{Himalaya Capital} offers
access to Chinese Equities, and Shehzad
Janab's~\href{http://www.daman.ae/}{Daman Investments} hedge fund
provides access to the UAE market. These targeted opportunities can at
times hugely outperform developed markets. However, investors should be
prepared to accept both local economic as well as political risk as well
as lack of diversification.\\

\textbf{Match returns to liabilities and obligations.}~ Often Money
Holders do not care about the highest return \emph{per se}, but want
assurance that they can meet their financial obligations.~ This is
particularly true for retirees as well as many institutional investors
such as pension funds and endowments.~ If you invest in dividend funds,
utilities, bonds, or many types of rental real estate, you know with
(relatively high) confidence that you will get predictable incoming cash
payments.~ For example, two of the biggest municipal bond funds which
provide predictable, tax-free income are T. Rowe Price Tax Free High
Yield Fund and American High Income Municipal Bond Fund. Bond funds,
however, in a low interest environment provide low returns and often do
not match investor liabilities. Alternatively, commercial and
multi-family real estate funds, which provide a blend of annual
dividend-like payment and opportunity for appreciation at exit, have
also become a popular investment for liability matching.\\

\textbf{Achieve political goals.}~ Many public Money Holders have
defined public service goals, e.g., invest in companies in their home
state.~ Similarly, most sovereign funds look for way to invest in
economic development in their local economy. We see a few Money Managers
that specifically target the unique needs of sovereign funds creating
customized investment strategies.\\

\textbf{Self-discipline.~} Just as with losing weight, there is no
shortcut to success in investing.~ Money Holders need to start by
putting money aside, which requires discipline.~ There are business
models that encourage such discipline, including certain retirement
pools, e.g., 401Ks, which charge penalties for early withdrawal.~ This
has two benefits: it allows the Money Manager responsible for the 401Ks
to make long-term investments, and it also increases the likelihood that
the retail investor will have more money for retirement.~ Many advisors
automatically withdraw each month an investment allowance from their
customers' bank account. ~\\

\textbf{Major catastrophe protection.}~ A non-trivial percentage of
investors want
to~\href{http://survivalblog.com/some_investment_options_for_th/}{protect}
themselves in the event of major
economic~\href{http://www.thesurvivalistblog.net/prepper-investment-diversification/}{dislocation}.~
They might invest in a backup luxury second home, ideally in a place
like Vancouver; Canada is a stable country with rule of law and low
vulnerability to climate change.~ Portable wealth (gold, jewelry,
diamonds) allows you to cross borders easily in the event of social
turmoil.~ Certain local businesses (e.g., a restaurant or farm) can
provide income even in the midst of turmoil.~ Mormons keep a
twelve-month supply of food and essentials in their basement as
insurance.~ We are not aware of a financial product offering that
addresses this unique need more systematically. Catastrophe insurance
(e.g., flood insurance) provides protection against narrowly defined
protections.~ However, in the event
of~\href{http://www.theatlantic.com/national/archive/2014/10/welcome-to-prepper-camp/381351/}{The
End of the World As We Know It} (the disaster prepper's worst-case
scenario), traditional financial services providers will probably not be
reliable.\\

\textbf{\emph{Emotional Jobs to Be Done}}\\

While performing the functional Jobs is the bare minimum requirement for
a Money Manager, and special purpose Jobs target specific customers,
Jobs at the emotional, experiential and social level create a deep
connection with clients and lead to ``sticky'' relationships. The
ability to do these Jobs well marks those firms which are likely to stay
in business for the long-term.~
\href{http://disruptinvesting.com/2015/08/is-the-black-box-hedge-fund-model-doomed/}{According
to Amanda Tepper}, CEO
of~\href{http://www.chestnutadvisory.com/}{Chestnut Advisory Group}:
``contrary to conventional wisdom, investment performance alone does not
drive asset flows. While there is a clear relationship between the two,
investment performance accounts for only about 15\% of the reason for
placing money with managers. We found correlations between trailing
three-year returns (the primary metric most institutional investors
follow) and subsequent one-year net capital inflows ranging from only
0.24 among small and mid-cap equity managers to just 0.04 for Global
Fixed Income managers. ''\\

We have found that customers may not clearly express or even openly
admit that they value Emotional, Experiential and Social Jobs in some
cases higher or as high as the functional Jobs.~ However, the Money
Managers that perform these experience and social Jobs well consistently
attract more assets. ~\\

\textbf{Customer service.}~ Customer service is important for both
retail and institutional investors.~ In the retail space, in addition to
expertise, investors value empathy in their financial
advisors:\href{http://www.forbes.com/sites/russalanprince/2015/04/01/what-clients-value-in-their-financial-advisors/}{``An
empathetic financial advisor is one who truly listens to clients,
ensuring they feel understood and who demonstrate that they care.''}~
One expert in private wealth management says that advising people about
money is being ``part financial expert, part shrink, part friend and
confidant, and part entertainer.'' ~\\

In the institutional space, hedge
fund~\href{http://www.bwater.com/}{Bridgewater} has a
bend-over-backwards-for-clients internal culture; a large client service
department staffed with investment level professionals; and its own
analytics team whose research and advice is provided to clients at no
extra charge.~ Additionally, ability and availability to provide insight
into ``how the world works'' from an investment perspective earns
Bridgewater loyal long-term investors. The high importance Money Holders
place on customer service calls into question the viability of
technology-only investment platforms (like robo-advisors) and the black
box hedge fund model of
``\href{http://disruptinvesting.com/2015/08/is-the-black-box-hedge-fund-model-doomed/}{give
me your money and wait for your annual report.''}\\

\textbf{Transparency.~} \href{http://ark-invest.com/}{ARK Invest} offers
several ETFs with near-real-time exposure of their individual trades.~
Goldman Sachs recently announced that it will share some of
its~\href{http://www.wsj.com/articles/goldman-sachs-to-give-out-secret-sauce-on-trading-1439371800?mod=WSJ_article_EditorsPicks_1}{secret
sauce} with its clients. ~\\

One of the current problems that institutional investors face is lack of
adequate transparency and control of all costs charged by manager, which
was dramatized by the Madoff fraud.~ According to
the~\href{http://topics.nytimes.com/top/reference/timestopics/organizations/c/california_public_employees_retirement_system/index.html?inline=nyt-org}{New
York Times}, ``Earlier this year, a senior executive of the California
Public Employees' Retirement System, the country's biggest state pension
fund, made a surprising statement: The fund did not know what it was
paying some of its Wall Street managers.'' The investment agreements
that institutional investors sign often give a lot of leeway to managers
to pass questionable costs to the LPs. Recently, the Carlyle group
passed on their limited partners (LPs) the cost
of~\href{http://www.nytimes.com/2014/10/19/business/retirement/behind-private-equitys-curtain.html?_r=0}{a
\$115 million settlement of a insider trading lawsuit}. This create an
opportunity for companies such
as~\href{http://www.vitrio.com.br/}{Vitrio},~\href{http://www.novus.com/}{Novus},
and~\href{http://www.acordiq.com/}{AcordIQ}~which provide a technology
platform to institutional investors for systematic oversight of fund
managers. Some industry champions, such as Scott Evens, CIO of one of
the largest public pension fund, New York City Retirement Systems, are
leading the way to establishing best practices around a revamped
due-diligence and governance process.\\

\textbf{Education.~} The fastest growing sector in investment research
for the last two decades are
\href{http://teten.com/blog/category/industry/expert-networks/}{expert
networks}, e.g., \href{http://glg.it/}{GLG}.~ They slice out what many
analysts traditionally considered their investment edge -- a proprietary
group of expert relationships built up over years in the business - and
offers direct access to experts on any possible category, for on-the-fly
education.\\

There is no ongoing education requirement for many professional
allocators, and most HNW private investors and retail investors have
little to no education in contemporary investing, observes Joseph
Reilly, a family office consultant in Greenwich, Connecticut.~ This
aspect of asset management often gets lip service, but it is essential
to retaining clients.~ The smaller investor, and even large family
offices, cannot possibly keep current with the changes in the way the
markets are traded.~ They have very little understanding of the arms
race around esoteric asset packaging that runs rampant on the Street, or
how high frequency trading actually affects the market.~ It falls to
Money Managers to educate their clients on how new strategies work,
despite their clear conflict of interest.~ This goes for professional
allocators as well, many of whom think portfolio management started with
Markowitz and ends with Swensen.~ Recognizing good change from simply
more risk is the Job of education.~ One of the secrets of Bridgewater's
growth to be the world's largest hedge funds is their enormous
investment in what is effectively free consulting for their clients.\\

\textbf{Social welfare.}~ Millennials and women -- both growing forces
in the pool of Money Holders -- are more likely than their past
generations and men in general to value doing good in addition to doing
well.~ According to Patrice Viot Coster, COO of AXA Investment Managers
Research: ``People may want to express openly who they are through their
investments: I am what I invest.'' We do not mean the philanthropic
activities of hedge fund billionaires, but the general desire of the
average investor to positively impact the world through their
investments.~ Social impact or ``green'' bonds offer a creative way for
investors to invest in companies offering returns linked to achieving
certain defined social impacts.~ Numerous ``double-bottom-line''
socially responsible investors promise Money Holders the option of
earning high returns while they achieve certain socially desirable
goals. Generation Investment Management (co-founded by former Vice
President Al Gore) has over \$7B under management,~ and differentiates
from competition in large part based on their focus on ``sustainability
research''. ~ According
to~\href{http://www.cambridgeassociates.com/news/articles/private-impact-investing-funds-yielded-financial-performance-in-line-with-similar-private-investment-funds-with-no-social-objective/}{Cambridge
Associates}, private impact investment funds -- specifically private
equity and venture capital funds -- that pursue social impact objectives
have recorded financial returns in line with a comparative universe of
funds that only pursue financial returns.\\

\textbf{Religious beliefs.}~ Religious institutions (e.g., the Catholic
Church and Mormon Church), observant individuals, and some family
offices look for investments that are compliant with their religious
views.~ For example, consider Omar Bassal, head of asset management
for~\href{http://www.masic.com.sa/}{MASIC}, a shariah-compliant family
office based in Saudi Arabia.~ He structures investments in public
equity, private equity and real estate to comply with Islamic
restrictions regarding business activities and interest, among other
things. Omar sees ``a shortage of investment funds that are specifically
designed for investors that want to invest in a way that is consistent
with Sharia laws.'' Shariah-Compliant funds are prohibited from
investing in companies which derive income from the sales of alcohol,
pork products, pornography, gambling, military equipment or weapons.~
Additionally, Shariah compliant funds cannot employ conventional
leverage or sell shares short. Instead of investing in bonds, notes,
T-bills and other conventional fixed income products, Shariah compliant
investors favor trade finance funds, leasing funds and Sukuks
(income-generating asset backed pools) which provide a substitute for
the portion of investors' portfolios that carries less risk than equity
markets and provides yield.~\\

\textbf{Access to networks, e.g., celebrity investors.}~ Some investors
buy Berkshire Hathaway stock just to get an invitation to their annual
meeting.~ In public markets, value investors puzzle at the valuations
Elon Musk's companies,~\href{http://www.teslamotors.com/}{Tesla}
and~\href{http://www.solarcity.com/}{SolarCity}, command and attribute
that partially to Musk's star appeal.~ \emph{} Some VCs choose to invest
in a company in part to build a stronger relationship with existing
prominent VC investors. Also, in venture capital, companies that have
raised money from celebrities often attract people eager to put money in
just to have a shot at rubbing shoulders with the glitterati.~
\href{http://starangelnet.com/}{STAR Angel Network} formalizes this by
offering membership exclusively to athletes and celebrities. Star
athlete Torii Hunter and Wall Street Veteran Ed Butowsky formed the
exclusive~\href{http://www.clubhouseinvestmentclub.com/}{Clubhouse
Investment Club} for the same reason: the founders hope that Hollywood
and sports celebrity members' access to social media will contribute to
stronger performance of their investments.\\

\textbf{Personal use and passion.~} Some investors put money into art,
wine, jewelry, antiques, stamps, or even a sports team, more for
personal use than as a financial investment.~ Baby boomers in the west,
who have paid their mortgage and put their children through college, as
well as the \emph{nouveau riche} in Russia and China, are driving the
value of
``\href{http://www.ft.com/intl/cms/s/0/aca193f8-5850-11e4-a31b-00144feab7de.html\%23axzz3j7jxhznB}{passion
investments}'' up.\\

Many investors put money into equity crowdfunding sites
(\href{http://angel.co/}{AngelList},~\href{http://circleup.com/}{CircleUp},~\href{http://thefundersclub.com/}{FundersClub},~\href{http://ourcrowd.com/}{OurCrowd},~\href{http://seedinvest.com/}{SeedInvest},
etc.) and product crowdfunding sites
(\href{http://indiegogo.com}{Indiegogo}) because of the excitement and
ego gratification of investing in a small, unknown, exciting startup
company. The same is true for individual angel investments made by
retired business people who enjoy continued engagement and the energy of
small start ups.~ The hope of a financial payout is not the only
motivator for these angels who also invest their personal time and
experience. One such angel shared that he invests in all the startups
his buddies put money into, because he does not want to be the only one
left out at the local bar who is not toasting to the one startup they
invested in with a 20X return.\\

\textbf{Coolness and exclusivity.~} The best example of this is Bernie
Madoff.~ He was a fantastic salesman and would be one of the world's
best Money Managers, if not for the unfortunate fact that he was a
fraud.~ He persuaded his clients that he had only limited capacity, and
was only able to let in his friends/contacts as investors.~ His
perceived ``exclusivity'' made investing in his firm all the more
attractive.~ Certain
investors~\href{http://thereformedbroker.com/2013/08/08/confessions-of-an-institutional-investor/}{prefer}
to allocate in ``cool'', ``selective'', hedge funds, as opposed to
boring mutual funds, precisely because hedge funds are not broadly
marketed to the \emph{hoi polloi}.~ Similarly, in the past few years
actors and professional athletes (neither historically groups known for
investing acumen) have been piling into seed-stage technology investing
because it's seen as ``cool''.\\

\section{Appendix 2: The Universe of Investable
Assets}\label{appendix-2-the-universe-of-investable-assets}

To frame our analysis and understand where disruption has happened in
the past, we analyzed the global flow of assets from money holders, to
intermediaries (advisors), and on to money managers.~ Collectively, we
call this the universe of investable assets, which totals today roughly
\$280 trillion: ~\\\selectlanguage{english}
\begin{figure}[h!]
\begin{center}
\includegraphics[width=0.98\columnwidth]{figures/img/img}
\caption{{Picture 8. The \$280 Trillion Global Universe of Investable Assets~ ~ ~
~~%
}}
\end{center}
\end{figure}

The value of the universe of investable assets has increased over time,
fueled fundamentally by population growth (which typically expands the
value of the underlying corporations) and economic growth.~ This type of
growth is also referred to as beta return or the above-cash market
return. To benefit from such returns, investors do not require much
investment acumen other than smart diversification.\\

The relative size of each pool changes over time due to investor
preferences, which is driven by growth expectations, risk perceptions,
total available liquidity, and investors' idiosyncratic views.~ For
example, one of the best examples of disruption is the low cost index
fund movement, pre-eminently Vanguard.~ As a result of the sector's
growth, the proportion of assets managed by money managers in
traditional active core asset classes has shrunk dramatically from
nearly 60\% of assets in 2003 to less than 40\% today.~ This will likely
accelerate, as net flows into traditional active core asset classes are
negative (See Picture 9). ~\\\selectlanguage{english}
\begin{figure}[h!]
\begin{center}
\includegraphics[width=0.98\columnwidth]{figures/image25/image25}
\caption{{Picture 9: Passives and Specialties Continue to Win a Disproportionate
Share of Net Flows.%
}}
\end{center}
\end{figure}

Even low-cost retail advisors like
\href{https://www.schwab.com/}{Charles Schwab},
\href{https://www.fidelity.com/}{Fidelity}, and
\href{http://www.vanguard.com/}{Vanguard} are not immune to pressure
from the yet lower cost robo-advisors.~ Change is happening so fast that
disruptors are now potentially being
\href{http://www.ft.com/intl/cms/s/0/c16374ce-2171-11e5-ab0f-6bb9974f25d0.html\%23axzz3rBynjp3A}{disrupted}.~
In a
tepid~\href{http://disruptinvesting.com/2015/03/how-to-make-sense-and-profit-in-todays-confusing-economy/}{global
economy}, money holders worry more about
\href{http://disruptinvesting.com/2014/10/how-taxes-and-trading-costs-kill-investment-returns/}{minimizing
costs, taxes}, and fees, rather than unpredictable top-line returns.~
Schwab is looking to take market share from traditional wealth managers
and full service brokers, while
\href{https://www.wealthfront.com/}{Wealthfront} works on snaring
Merrill Lynch clients.~ Meanwhile,
\href{http://www.alibaba.com/us}{Alibaba} and other social media giants
are busy working to capture Schwab's business. (See Picture 1).~ As of
June 2015, Alibaba had amassed over
\href{http://www.bloomberg.com/news/articles/2015-06-04/alibaba-expands-into-financial-news-with-china-media-investment}{\$115
billion} in assets under management in just two years.\\

\textbf{Global Investable Assets Assumptions}\\

To estimate global Investable Assets, we made the following
assumptions:\\

\begin{itemize}
\tightlist
\item
  Defined the universe of Investable Assets (See Terminology) as all
  financial capital available for investment in the world economy, less
  operating capital, i.e., less the resources the world economy needs to
  function on an ongoing basis.\\
\end{itemize}

\begin{itemize}
\tightlist
\item
  Defined Money Holders as the original owners of the Investable Assets,
  who have the most to gain or lose from the appreciation or
  depreciation of the investment.\\
\end{itemize}

\begin{itemize}
\tightlist
\item
  Ignore in this definition
  \href{http://www.economist.com/news/finance-and-economics/21654085-cash-strapped-governments-are-leaving-riches-wayside-neglected-wealth}{government-owned
  commercial assets}, which amount to approximately \$75 trillion in
  value, and are a largely opaque asset class not fully driven by market
  forces.~\\
\end{itemize}

\begin{itemize}
\tightlist
\item
  Included real estate and specifically the purchase of primary homes,
  which can technically be both considered working capital or
  investment.~ Owning a house is not only a operating need, but also a
  form of investment and a store of wealth for the majority of Money
  Holders, especially those with less than \$1 million in net worth.~\\
\end{itemize}

\begin{itemize}
\tightlist
\item
  Categorized insurance and pensions as Money Holders, although the
  policies belong to individuals and they are in fact a hybrid group
  that can be considered also part of Intermediaries. ~\\
\end{itemize}

\begin{itemize}
\tightlist
\item
  Excluded leverage as part of asset manager AUM, although leverage acts
  like an accelerator that increased return at higher volatility. For a
  comprehensive study of the impact of leverage, which currently stands
  at the formidable number of \$200 trillion, we recommend reading
  \href{http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging}{Global
  Debt and (Not Much) Deleveraging}, from McKinsey \& Co.\\
\end{itemize}

\section{Disclaimers and Disclosures}\label{disclaimers-and-disclosures}

The opinions expressed herein are only those of the authors
individually, and do not represent the views of any of their employers
or of any other institution with which they are affiliated.\\

Katina Stefanova is an investor in
\href{http://accordiq.com.cutestat.com/}{AcordIQ} and
\href{http://longgame.co}{Long Game}; is a former
\href{http://www.bwater.com/}{Bridgewater} Senior Executive; and
continues to have financial interests in Bridgewater.~\\

David Teten has a financial interest in
\href{https://www.addepar.com/}{Addepar},
\href{http://earnestresearch.com/}{Earnest Research}, and
\href{https://www.indiegogo.com/}{Indiegogo}.\\

Brent Beardsley has been a consultant in the past and possibly in the
future to some of the leading global financial services institutions
mentioned above. ~\\

\section{Contributors}\label{contributors}

\par\null

This study would not have been possible without the collaboration and
support from The \href{https://www.bcg.com/}{Boston Consulting Group}.~
We also want to thank the research, technology and editorial team who
supported us during this study: Greg Durst, Jen McPhillips, Jenny Wong,~
Charles McLaughlin, Michael Rose, and James Ebert.

\par\null

We give special thanks to the dozens of industry leaders that
contributed to this study with their insight. All errors herein are our
responsibility. Among those we interviewed:

Dr Rania Azmi, International Investment Expert \& Speaker

Tom Bartman, Senior Researcher, Forum for Growth and Innovation, HBS

Omar Bassal, Head of Asset Management, Mohammed Alsubeaei \& Sons
Investments Company

John Casey, Chairman of CaseyQuirk

Mary Cahill, CIO of Emory

Charles Dooley, CEO of AcordIQ

Greg Durst, COO of Marto Capital, former Endeavour, CEO of Africa

Grant Easterbrook, Co-founder, Dream Forward Financial

Charles ``Charley'' D. Ellis, Founder, Greenwich Associates

Scott Evens, CIO of New York Pension System

Steven Fradkin, President, Wealth Management, Northern Trust

Jeff Hunter, CEO and Founder of Talentism

Omar Kodmani, CEO of Permal

Charles McLaughlin, Principal, National Security Practice, Censeo
Consulting Group

Gary Markovitz, CEO of Business Innovation Partners

Carol Morely, CEO of the Imprint Group

Joseph W. Reilly Jr., family office consultant

Peter Sanchez, CEO Northern Trust Hedge Fund Services

Harry Singh, CFO at AIG Operations

Dhivya Suryadevara, CIO of GM Pension Fund

Amanda Tepper, Chestnut Advisory Group

\par\null

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