Mean-variance optimization (MVO) is a 50+ year concept, and perhaps the first seminal idea of quantitative finance. Still, as far as I know, less than 25% of AUM in the US is quantitatively managed. While a small minority of fundamental managers use MVO, that is counterbalanced by statistical arbitrage and HF strategies that often use optimization but not MVO, so the percentage of AUM not allocated using Markowitz' invention is surely not less than 70%. My questions:
if MVO is such a great idea, why after all this time, so few people use it?
if MVO was such a bad idea, how come companies like Axioma, Northfield and Barra still make money off it?
is there there a rationale for the current mixed equilibrium of users and non-users?
A few caveats on what I just said: i) perhaps the first and most important idea in finance is that of state-contingent assets, which is Arrow's; ii) I am focused on the buy side. I believe that optimization is widely used for hedging on the sell side.