A light, alternative regulatory framework could be introduced for those asset managers that can show that most of their own wealth is invested alongside the fund they manage. Such managers would profit mainly from incentive fees, risk-seeking behaviour being prevented by their own large interest in the fund.
This might make small funds viable even if the rest of the industry focuses on collecting large amounts of AUM for 20 bps. A large number of unrelated small funds with the right long-term incentives should allocate capital more efficiently on average than a smaller number of institutional funds with bloated cost structures.
