A mathematical fact for investment funds of all sorts–private equity funds, hedge funds, venture capital, etc.–is that growth and outperformance do not go hand-in-hand and are often negatively correlated. The more money a fund manages, the harder it can be to find opportunities that will make a material impact on the overall fund’s performance, the harder it can be to deploy capital efficiently, the harder can be to execute strategies without moving prices against you, etc.
This is part of the reason for the age-old tale of a small fund outperforming, attracting overwhelming levels of new capital (because of prior outperformance), then woefully underperforming, causing overwhelming outflows, rinse and repeat ad nauseum (to the continued enrichment of the folks running the fund lol).
But what’s most interesting to me about all of this has nothing to do with money funds and everything to do with you and me: doesn’t something similar happen in our own lives as our income and wealth go up?
Doesn’t it become harder for purchases to make us happy? Don’t the little purchases that used to feel like such a treat become white noise? Doesn’t it become harder to practice gratitude? Doesn’t it sometimes feel like the increases in income and wealth arrive to the party with guests named Pressure, Stress, and Anxiety?
It’s not impossible for funds to grow and continue to beat their benchmarks, and it’s not impossible for rich folk to live rich lives without those unruly guests, but I do think it’s wise to remember how difficult these things can be. To watch out for them and do our best to be prepared.
Meaningful Returns 