The hedge fund industry has undergone significant consolidation, with capital increasingly concentrated among large multi-strategy platforms. Yet boutique managers, defined as firms with 200 million to 1 billion in assets under management, have exhibited notable resilience. This article examines how governance architecture, organizational scale, and strategy capacity interact to shape competitive outcomes in a consolidating industry. I analyze the structural advantages of large platforms, including regulatory infrastructure, distribution networks, and technological scale, alongside the distinctive governance features of boutiques, such as concentrated ownership, incentive alignment, and strategic specialization. The evidence suggests that performance dynamics are strategy dependent rather than purely size dependent: Boutiques tend to outperform in capacity-constrained strategies, whereas larger firms benefit from economies of scale in liquid markets and systematic strategies. I argue that optimal fund size exists along a strategy-specific continuum and that effective allocator decision-making requires evaluating governance structures, operational resilience, and capacity discipline rather than relying on asset size alone.
Francois-Serge Lhabitant (Thu,) studied this question.