The WEALTHTECH Book

The 100 Trillion Dollar Market Failure

By Oren Kaplan

Co-Founder and CEO, SharingAlpha

The idea behind SharingAlpha had been boiling in my head for years. Once I decided it was time to execute, I called up my brother who is an extremely talented and experienced programmer and asked him whether he would like to join me on this journey. I have over 20 years of experience in the financial industry and I cover the “Fin” part. My brother, now aged 46, has been writing code since the age of 13 and comprises the “Tech” part.

Over US$100 trillion are managed globally by active managers. Most of the assets flow to managers who have performed well in the past and outflow from those that have underperformed, although research has proven time and time again that past performance is not an indicator for future results. It is not just a disclaimer at the bottom of every fact sheet, but actually a reality.

One might compare this with lottery players who decide to select last week’s winning numbers, while most of us are aware of the fact that doing so does not improve their chances. In the asset management world, crowding behaviour might actually be harmful since every strategy has its capacity limitations and therefore, buying into what is known as “mega funds” that have performed well in the past actually decreases their chances of achieving outperformance in the future.

The natural question to ask is: “Why do investors behave this way, or in other words, what is the current market structure ...