Hedge Funds 

The allure of smaller funds is their nimbleness. They can dart in and out of investments with speed that some of their larger competitors struggle to mimic. They can also concentrate on their best ideas, experts say.

“What you see with small or newer managers is they are engaging in strategies that are different and new and haven’t been seen before,” said Meredith Jones, a director at Barclays Capital’s strategic consulting group. “In many cases, that’s where a lot of the innovation comes from and that’s what keeps the industry from becoming homogenized.”

The start-ups that tend to gain traction have two main characteristics: pedigree and performance.