It's only more profitable if you don't have capital. Most of the very successful hedge funds stop taking other people's money and just invest their own once they have enough.
You're confusing the math with the reason they stop taking external funds. They always make more money if they add external funds just like 20% of $101 is greater than 20% of $100.
They stop taking external money because managing clients can be a pain. At some point, depending on the fund (e.g. a niche fund that can never grow beyond a certain size), a shrewd money manager can grow to dominate the niche. In that space, they might as well just kick everyone else out and save the headache because the reward of the bigger pie just isn't worth it.
Frankly, even though I manage money for a living, and I really like my clients, it's still difficult. If it were my 1 beeellion dollars (touch pinky finger to the lips), then I wouldn't manage other people's money either - the marginal profit to me personally just wouldn't be worth it (for me, after the first billion, it's pretty darn trivial).
They stop taking external money because managing clients can be a pain. At some point, depending on the fund (e.g. a niche fund that can never grow beyond a certain size), a shrewd money manager can grow to dominate the niche. In that space, they might as well just kick everyone else out and save the headache because the reward of the bigger pie just isn't worth it.
Frankly, even though I manage money for a living, and I really like my clients, it's still difficult. If it were my 1 beeellion dollars (touch pinky finger to the lips), then I wouldn't manage other people's money either - the marginal profit to me personally just wouldn't be worth it (for me, after the first billion, it's pretty darn trivial).