Thursday, February 9, 2016 Stamford, CT USA — Reports of the death of active management are not just premature, they are altogether incorrect.

A new report from Greenwich Associates, Is There a Future for Active Management?, concludes that despite the growing enthusiasm for passive investment strategies, active managers will actually thrive in a maturing industry.

The report explains why active management will remain a viable and attractive business for the foreseeable future—despite the fact that investors’ increased appetite for passive investments appears to be secular rather than cyclical. 

“The overall institutional asset pool in both the U.S. and around the world is growing, and investors continue to need exposure to complex, opaque and illiquid markets not conducive to passive strategies,” says Greenwich Associates Managing Director Andrew McCollum. “Those trends—along with innovation in active products and distribution models, and profit margins that remain quite attractive—will more than sustain active management.”

Winners and Losers
Despite this positive outlook, the shift in institutional preferences represents a real threat to the business prospects of some active managers. Going forward, there will be winners and losers.

Winners will be managers who: 1) Partner with clients in areas with high levels of complexity and in which they have unique insight or the capabilities to exploit information asymmetry, and 2) Provide solutions to clients’ complex challenges, adding value in a cost-efficient manner.

Losers will be firms that stick to traditional, product-centric approaches. This applies in a growing number of increasingly liquid asset classes perceived by institutional investors as offering diminished opportunity for alpha generation. 

“Active managers that fail to develop and communicate differentiated capabilities or introduce innovative new products in adjacent areas will see their franchises decline,” says Andrew McCollum.