Recent events suggest that the evolution of the asset management industry and, in particular, hedge fund and private equity firms, is approaching a key phase.

The founders of those firms left investment banks seeking control of and freedom to run their businesses. They have now reached a point of critical mass requiring some form of institutionalisation if the entity is to continue to grow. Recent high-level departures, management restructurings, trade sales and listings, some of which have been widely reported, have highlighted these developments.

To a large extent these issues would apply to any growing business. However, the position is complicated by the fact that the reputation of an asset manager is often built upon that of its key performers. At some stage, those individuals will inevitably want to retire from the business and realise the value of their work in building it. Equally, the next generation of leaders will want to take greater control. However, with the level of investor confidence in the firm and, as a result, the value of the business largely tied to the involvement of those key individuals, a smooth plan for succession is key to maintaining stability.

Institutionalisation
The industry has seen enormous growth in the number of firms being established over the last 20 years. However, alongside the many boutique practices has developed a smaller number of leading asset management businesses which have become institutions in their own right, employing hundreds of investment professionals and in many cases benefiting from a wide network of international offices and an institutional client base.