The Curse of Size

The Curse of Size

Is bigger always better?

In America we are accustomed to think that the larger something is, the better. Larger companies tend to have broader product lines; larger cities offer more cultural amenities; larger markets are usually more diversified. But sometimes size can be a hindrance to doing business.

Recently Blackrock, the $3.6 trillion money manager (that sponsors the iShare family of Exchange Traded Funds) was rebuffed when it offered to perform the stress-testing for Spain’s banks. Blackrock has made no secret of its desire to purchase Spanish assets; Spain’s economy minister feared the firm might be conflicted. “How can you be both the referee and a player?” he inquired.

Of course, conflicts have been a stock-in-trade among large financial firms from the moment the first underwriter sought to unload a troubled asset on an unsuspecting investor. That’s one reason why Finra, Wall Street’s self-regulatory body, is initiating a top-to-bottom review of conflicts within brokerage firms.

But more than just the endemic conflicts that plague larger firms, size creates complexity that can be difficult to manage. GE’s financial arm started out as a vehicle for the company to facilitate sales of big-ticket items like jet engines and MRI machines, but it grew during the go-go ‘90s to become one of the most powerful financial firms in the nation. Their extensive commercial real estate book almost brought down the entire company in 2009.

Theroux exhorted us to “simplify, simplify.” Sometimes the best way to grow is to shrink first.

Douglas R. Tengdin, CFA
Chief Investment Officer

Follow me on Twitter @tengdin

By | 2012-10-09T08:51:22+00:00 October 9th, 2012|Global Market Update, Investing|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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