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There were many surprises for us at the start of 2020. The halt to life as we knew it, with contrary and questionable statistics, bringing the light the need for clear, reliable data. The impact to many of our portfolio companies, much of which is still unfolding, highlighting how much the manner in which a firm operates may not be obvious to investors[1]. One clear surprise for the investment community was how several investment strategies that had promised diversification or pure alpha returns transpired to correlate highly to the market.

The asset management industry is a data industry, handling information rather than physical goods. It is an industry that is managing $100 trillion in assets. It is an industry that impacts the retirement outcomes and future happiness for every single one of us.

Investors have three ways to generate returns in tradable markets. Invest in deposits or government bonds to earn a risk-free rate of return (time value of money); Take on various market and factor risks to earn the respective risk premia (betas); Find inefficiencies and dislocations in markets and capture this excess returns (alpha).

The traditional hedge fund model is no longer working. Performance is poor. Costs are high. Alignment is low. It needs to change. The three forces driving this need for change are:Increasing costs as regulators and investors demand higher operational standardsPressure on fees as investors are become more sophisticated and expect more for lessGreater competition making the markets more efficient and fragmenting available alph.