One possibility is that investing skill exists but is very hard to identify. The biggest asset managers would love to hire the people with the most investing skill, and they have the most money to pay those people, but they can’t find them in any particularly reliable or comprehensive way. Somewhere out there is a person who’s spent years running a 4 Sharpe ratio at her $5 million friends-and-family hedge fund, or her Robinhood personal account, but she never gets a job at a big hedge fund. Why? Perhaps there is no way for information about her performance to diffuse through the market; perhaps the big funds have some set of biases or constraints — they only hire people with the right background, etc. — that prevent them from hiring some of the most skilled people.
And so the skilled investors are distributed somewhat haphazardly. Some of them run multibillion-dollar portfolios at big multimanager multistrategy “pod shops” like Citadel or Millennium. Some of them run their own multibillion-dollar hedge funds with their names on the door. Others manage mutual funds, or the local teachers’ pension fund, or their personal accounts, or the investment opportunity that you just saw advertised on Instagram.