The Perils of Success

Abstract

The authors explore the impact of growth in assets under management on the performance of small–cap investment managers. They find that small–cap manager excess returns have a statistically significant inverse relationship to both the level of assets under management and the annual growth in the amount. The relationship between assets and performance appears to be very consistent and to transcend different substyles within the universe of small–cap managers. The authors discuss the challenges these findings pose for current and prospective clients of small–cap managers.