Sometimes I wonder, especially for multi billion dollar VCs, PEs and Hedge Funds, those that rake in $100s of millions in fees each year, if hiring twice or thrice the number of analysts or junior analysts would enhance the "stock or company" picks by little bit. Also, with more manpower, double up the time for research before finalizing a new investment. This should mainly help the "pure fundamental" shops where balance sheets and company products/technologies/niches etc. need to be looked into in very detailed manner. More employees would hit the bottom lines but better returns would jack it back up and reduce the marketing budget spent on hookers, ball game tickets and cruise vacations giveaways to the prospective clients.
It's a problem of a shortage of good deals. There aren't that many good companies to invest in, especially in this environment where asset prices have been inflated. These people aren't stupid and the super fundamental shops will make your head spin on the amount of information they can get on a company. But they have to put money to work.
Agreed, many managers are 2/3 in cash, especially the value type guys waiting for bargains from the correction. Shortage of deals might be because of fund's prospectus or type of investing being marketed. A value guy cannot suddenly switch gears and start buying growth stocks with high beta.
But then they suffer massive underperformance when the markets rally like they have. Further, what is value today is more expensive than what is value 20 years ago. You can't build a portfolio in the true Benjamin graham model anymore.