Global Asset Manager Rankings by US Equities, Part I

“One small step for man, one giant leap for mankind.”
Neil Armstrong

This one requires a walk down memory lane as backdrop for the money shot:

When I first started this venture in July 2015 the mission was to study the impacts of technology on capital markets, with specific focus on the use of technology for process automation by banks, asset managers, and trading firms. Early on, Alphacution was fascinated by technology spending patterns, concepts like “technical leverage,” and analytics like revenue per employee (RPE)…

The exhibit, below, was first published in a Feed post from November 2015: “Technical Leverage: Can You Defy Your Scale?” By this time, Alphacution had already developed a suite of benchmarks – called T-Greeks – to measure and benchmark various aspects of operational dispersion among groups of competitors…

It was difficult to bootstrap a company by trying to monetize competitive intelligence about operational dispersion among large “sell-side” firms, mainly among large banks. They were far too big, slow, and compartmentalized for a small research shop speaking a foreign analytical language. Our eventual turn to study the “buy-side” – with primary focus on proprietary trading firms and quantitative hedge fund managers – was where Alphacution’s somewhat unorthodox perspective – and style – began to resonate…

At that time, no one had the audacity to put a name like Citadel in the title of a research piece unless it had been properly sanctioned. These are highly secretive firms. Even saying their names out loud was taboo…

In April 2018, Alphacution announced the publication of its foundational case study – “The Context Machine: Estimating Asset Manager Technology Spending” – with a provocative Feed post title:

What Does Citadel Spend on Technology?

After all, we may be in the intelligence business, but even that goal requires that we have your attention first…

Anyway, the following exhibits from that research are posted as reminder, below. They should be familiar to long-time readers of Alphacution. We have been building on the simplest of these since defining and quantifying the relationship between technical leverage and human capital leverage. With each new version, Alphacution is still asking the same fundamental question:

How do asset managers scale?

It turns out, after studying many of these players, the answers are predictable…

By late 2018, Alphacution was asking related questions: Is the capacity of alpha finite? And if so, what are the implications for the asset management ecosystem?

It turns out, strategy capacities also make competitive dynamics predictable…

In October 2018, the Feed post, “The Privatization of Alpha,” proposed that not only was the capacity of alpha finite, but that it was becoming concentrated into fewer hands…

A year later, now in October 2019, Alphacution publishes the Feed post “BlackRock, Bridgewater, Citadel: The Decline of Speculation at Scale.” Here, we expand our interpretation of alpha capacity to include the concept of alpha elasticity:

“Here’s the base of what you need to know: Alphacution has established in prior research that 1) market players are aligned on a “map” or “field” in such a way that corresponds to a persistent relationship between AUM, technology spending and headcount (given a selection of mature managers), 2) this relationship is a proxy for average workflow automation embedded within each of a spectrum of strategy selections, and 3) the capacity of alpha is finite and elastic at any point in time.”
Feed post, BlackRock, Bridgewater, Citadel: The Decline of Speculation at Scale (October 24, 2019)

It was here that we started using the term market macro-structure research to describe the genre of research that Alphacution was cultivating. It was then that we started to distinguish between structural alpha and asymmetric alpha – and the sources of alpha elasticity, as we attempted to illustrate in the exhibit below…

The last time we added a layer or any other enhancement to our “Map” was March 2021. Inspired by Jim Simons and the Feed post, “Renaissance Technologies: Discovering the Omnitrade,” from March 2020, it wasn’t until a year later that we figured out how to visualize and communicate the concept of factor dimensionality. The following chart was first published in the Feed post, “Inspired by Renaissance Technologies: In Pursuit of the Omnitrade.”

Today, Alphacution is taking another step closer to the next big enhancement of our ecosystem map: Quantifying the capacity of alpha – starting with US equities product classes – in each zone, as implied by the version of the Map, below, from June 2019…

To make that leap, we need to know the value of the “product” being held by each player in each of the three zones of our Map: structural, active, and passive. To date, the answer to that question has eluded us not because we didn’t know where to find it but because Alphacution lacked the process automation to interrogate that data – in this case, 13F data – at scale…

That impediment has been a primary focal point of ours, and therefore, is becoming less true by the day…

As of December 2023, there were ~7,200 asset managers who filed 13F reports. This figure does not include sub-managers. In time, Alphacution will answer this and many, many other questions through time – at least for the past decade. For now, we just want to start with the shape of the US equities market as represented by a ranking of the broadest universe of global asset managers ever produced…

One more thing: As a critical preface for this exhibit, consider the following thoughts – the first time Alphacution ever used the term barbell in a Feed post – from June 2019:

“The plot here is reminiscent of the da Vinci quote we use with extreme redundancy for effect: ‘Learn how to see. Realize that everything connects to everything else.’
For our purposes here, the translation goes like this: Realize that everything going on in closest proximity to the sources of liquidity – our structural alpha zone – is impacting and re-shaping everything in other neighboring segments of the market ecosystem – our active and passive management zones. To put it a bit more bluntly: Just because we happen to be getting into some weeds on little-known option market making firms and secretive prop shops, YOU STILL NEED TO PAY ATTENTION! LEARN!
Furthermore, if we were to take the market ecosystem evolution to its limits; fast forward to a time when there is only the equivalent of Coke or Pepsi, Ford or Chevy, or some other binary choice caused by our current capitalistic model’s propensity to consolidate, then we are likely to find ourselves with a short list of Alpha players and a short list of Beta players like a ‘barbelling‘ of listed markets with crumbs of temporary, accidental and illusory forms of out-performance in-between (otherwise known as ‘phantom alpha’).
However, in the end, the choice here will not be binary; it will not come down to Alpha or Beta. The choice for you and I will only be Beta. Because by then, Alpha – real, persistent, high-capacity alpha – will be fully privatized…”
Simplex Trading’s Book: An Educational Tool Hiding in Plain Sight, June 2019

In the annotated chart, below, Alphacution is proud to present its global asset manager universe ranking by US equities value, as of December 31, 2023 when the total US equities market was valued at $44.7 trillion: