Asset Managers With $74 Trillion on Brink of Historic Shakeout


US Active vs Passive Fund Bloomberg | James Alexander Michie

The industry that led to the investment of the Titans Peter Lynch, Bill Miller and Bill Gross face an existential crisis.

It could be said that, for years, family investors frustrated by the high rates and lower returns of renowned money managers have been transferring their savings to ultra-economic funds that simply mimic the returns generated by the benchmark indexes of stocks and bonds. The passive investment, as you know, was inside. The active one was outside.

Certainly at the beginning, few noticed the money dripping from the funds managed by star money managers in cheaper indexed products. However, currently, nobody can ignore the flood. The exodus of active funds has sent inexorably lower rates, led to the loss of thousands of jobs and forced large-scale consolidation among companies.

A push for the industry

It has been established that this is pushing the industry, with $ 74 billion in assets measured by the Boston Consulting Group, towards a restructuring in which only the strongest will survive. The biggest managers have been able to boost assets in a competitive market.

Through various analyses, it has been demonstrated how relentless the environment has become for active fund managers who lack the scale or a compelling reason to be convincing. And it is that the combination of the competition of tariffs, the increase of the costs and the growth of the assets is creating pressures never seen before on the managers of assets, at least it is the point of view of Ben Phillips who is director and strategist Head of investment management at Casey Quirk, a unit of Deloitte Consulting LLP.

For their part, investors have responded by tripping over passive investments in recent years. Indexed funds are ready to outperform active management in the United States by 2021, according to estimates issued in March by Moody’s Investors Service.

The idea that active investment can be overvalued is certainly not new. Burton Malkiel, the economist at Princeton University who wrote the 1973 investment classic “A Random Walk Down Wall Street,” compared the skill of money managers with a blindfolded monkey throwing darts to collect shares. Jack Bogle, the late founder of Vanguard Group Inc. who popularized index funds, insisted that the most active managers were not worth the fees they charged.

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Source: Suzy Waite, Annie Massa, and Christopher Cannon | Bloomberg

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