The story of the American asset management firm Polen Capital seems, at first glance, to be just another case of a manager who ended up on the wrong side of the artificial intelligence revolution. Although not among the largest in the sector, its asset allocation decision demonstrates how the AI boom can be decisive for success or failure.
Based in Florida, the asset manager has seen its assets under management shrink by 60% - about US$50 billion - since its peak in 2021. The reason was the allocation decisions made by the management team.
In June 2023, Polen wrote to clients that the potential for appreciation in chip manufacturers' stocks was already reflected in prices. This meant, for example, not investing in Nvidia – since then, its shares have soared almost 400%, and the company has become the biggest winner in the AI race.
Stan Moss, Dan Davidowitz, and Damon Ficklin decided to bet on software companies. They believed that companies like Adobe, Salesforce, and ServiceNow would continue to capture value in this new era. That didn't happen.
Although it has accumulated a poor recent track record, Polen has had a successful trajectory since 2012, when it had close to US$2 billion under management.
Today, the Florida-based asset manager manages $33 billion, but its flagship fund ranked 243rd in absolute return out of 249 similar funds at the end of April, according to Bloomberg , based on Morningstar data.
Financial failures
History in asset management shows that great investors fail precisely when they appear most brilliant.
But Polen is far from being an isolated case. In the history of the markets, some of the biggest financial failures have stemmed precisely from investors who became victims of their own success.
And the greatest destruction of wealth in asset management occurs when managers become stuck on the success of the previous cycle – rarely does it come from fraud or irresponsible bets.
In 1998, Long-Term Capital Management, a fund created by some of the biggest names on Wall Street and which included Nobel Prize winners on its board, collapsed after the Russian crisis. Its sophisticated mathematical models worked perfectly – until the real world changed.
A decade later came the 2008 financial crisis. Bill Miller, then an industry legend for outperforming the S&P 500 for 15 consecutive years, maintained his belief in banks like Bear Stearns and Lehman Brothers when the market was already pointing in another direction.
The result was a drop of over 50% in its fund and the end of one of Wall Street's most admired careers.
More recently, Tiger Global, one of the big winners of the internet and software era, suffered billion-dollar losses after the technological cycle shifted. The market stopped rewarding growth companies at any cost and began valuing AI infrastructure, semiconductors, and computing power.
The same story repeated itself with Cathie Wood and ARK Invest. Celebrated during the pandemic for investing in disruptive companies, the asset manager saw its main ETF lose more than 70% of its value starting in 2021.
In Polen's case, the management company was right to identify that AI would transform the technology sector. However, it was wrong in defining who would capture the value of this transformation. Instead of software, the market decided to reward the suppliers of the revolution's infrastructure—chips, data centers, and computing capacity.
The greatest investors often lose money not because they fail to understand the future, but because they remain excessively attached to the past that made them successful. It's the difficulty of changing their minds.
