The ideal team size for a money manager to beat the market

Michael Mauboussin, director of research at BlueMountain Capital Management, has conducted a study which looks at the ideal team size for an asset management firm seeking to beat the market. He finds that funds managed by a team do better than funds managed by a single individual. That begs the question “What is the ideal size of a winning asset management team?”
Maubossin says “The best team size is three. The next best is five…Funds managed by three-person teams tend to outperform solo-run funds by 58 basis points a year, beating any other team size, according to Mauboussin. Although the effect is small, it’s statistically significant that teams are better at managing money…”
So why is three a better team size than, say, seven for managing money? ““The idea that more people tend to be better — more experience, more training, different points of view, and that’s to a large degree offset by coordination costs — getting people physically together,” Mauboussin said. “Smaller is better than bigger. Three would be preferable than seven.”
Furthermore, people should go beyond the typical social category diversity when creating a team, Mauboussin said. Social category diversity reflects differences in race, ethnicity, gender, age, etc. Cognitive diversity includes differences in education, training, experience, expertise and personality, which is key to problem-solving, Mauboussin said.””