An investor is presented with various options for growing wealth. Some may fully trust themselves by attempting to beat the market through active investing, while others may choose to lie back and passively invest in funds (exchange-traded funds (ETFs) and indices). But what about investing in companies that manage those funds, also known as asset management companies? Some big names in the asset management industry include Blackstone and BlackRock, which have assets worth over US$1 trillion ($1.29 trillion) and US$11 trillion, respectively.
Is investing in your investor a smarter way to make money? With dividends reinvested, Blackstone would have returned 455.7% over a 10-year period, while BlackRock would have given the investor 243.8% over the same period. Comparatively, the S&P 500 and Nasdaq gained 235.2% and 320.2%, respectively. Table 1 shows the returns of the top 15 asset management companies (including CapitaLand Investment) over multiple periods compared to the S&P 500 and Nasdaq. On average, the stocks of asset managers have outperformed the benchmarks over the short- to medium-term, but not over the very short- and long-term. However, picking the best asset management company in each period would have significantly outperformed the benchmark, which begs the question: How can we value and pick the most undervalued asset management companies?
