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 …show more content…
Soe [2015] shows that over the most recent five-year period, the majority of active managers failed to outperform their respective benchmark index based on net of fee …show more content…
For example, according to Morningstar, a total of $54.6 billion moved from active U.S. funds into passive U.S. funds in June and July of 2016. If outflows continued at these rates, the industry faces unprecedented pressure to reduce investment management fees over the next few years likely resulting in significant loss of assets under management (AUM). It is time for the industry to reflect and determine the course of action to reverse the AUM outflow into the passive strategies. The answer to reversing this trend is likely in redefining the role of a portfolio manager. The Webster dictionary’s definition of the word “manager” starts with “someone who is in charge of”. Consider the role a manager in any production line. The manager is responsible for ensuring all those involved in the production process are performing to best of their ability. A disciplined investment process for managing investment should be no different from a production line. As such, a portfolio manager should manage and ensure those involved in the investment process are process are performing to best of their ability. A well-tuned disciplined investment process requires a portfolio manager whose job is to ensure, fundamental analysts, market strategists and quantitative analysts are all working together to achieve the goal of
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 …show more content…
Soe [2015] shows that over the most recent five-year period, the majority of active managers failed to outperform their respective benchmark index based on net of fee …show more content…
For example, according to Morningstar, a total of $54.6 billion moved from active U.S. funds into passive U.S. funds in June and July of 2016. If outflows continued at these rates, the industry faces unprecedented pressure to reduce investment management fees over the next few years likely resulting in significant loss of assets under management (AUM). It is time for the industry to reflect and determine the course of action to reverse the AUM outflow into the passive strategies. The answer to reversing this trend is likely in redefining the role of a portfolio manager. The Webster dictionary’s definition of the word “manager” starts with “someone who is in charge of”. Consider the role a manager in any production line. The manager is responsible for ensuring all those involved in the production process are performing to best of their ability. A disciplined investment process for managing investment should be no different from a production line. As such, a portfolio manager should manage and ensure those involved in the investment process are process are performing to best of their ability. A well-tuned disciplined investment process requires a portfolio manager whose job is to ensure, fundamental analysts, market strategists and quantitative analysts are all working together to achieve the goal of