Business Issue : The Asset Management Industry Essay

1014 Words Nov 14th, 2016 5 Pages
Business Issue: The Asset Management Industry
There are two general approaches to investment management – either utilizing active investment management or passive investment management. An active investment managers’ goal is to outperform a specific benchmark index by identifying mispriced securities. A passive managers’ goal is to closely track or replicate the return pattern of a specified benchmark index at a low cost. A passive manager does not make any attempt to seek out mispriced securities. Over the past several years, the rise of robo-advisor and FinTech which rely more on a passive management strategy, the asset management industry is facing fee pressure. As the passive managers drive down cost of investing, many in the investment industry are beginning to question whether the higher fee earned by active managers will survive much longer.
The active versus passive investment debate has been ongoing since the mid 1970’s with the introduction of index funds. The first index fund for individual investors was the First Index Investment Trust sponsored by the Vanguard Group. While the arguments for active or passive investing are covered by academia and practitioners alike ad nauseam, the debate continues due to dialogue around mispriced securities. At any given moment, security prices represent the best estimate of fair value by all market participants. A particular security may have a better outlook due to its competitive position, superior technology, product…

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