Asset Managers Best Positioned To Weather Passive Storm
Curious to get folks thoughts - which of the traditional LOs do you think are best positioned to weather the passive storm and why?
Curious to get folks thoughts - which of the traditional LOs do you think are best positioned to weather the passive storm and why?
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Managers who successfully are able to capture alts markets, and managers who do well in strategies that passive funds are not "good at".
Fixed Income in general will probably do better because of the moats presented by how it's traded (something like 80 percent of FI funds outperform benchmarks? Correct me if I'm wrong), so established fixed income firms will probably be okay as long as they diversify their capabilities beyond vanilla IG / Sovereigns into Alts since IG can definitely become a bit commodified.
I think long only firms will generally fall into three groups:
At the moment you have a lot of firms who are having an identity crisis because they’ve moved from one category to another over time and they’ve no idea where they’d ultimately like to settle.
There are some exceptions, e.g. BlackRock have a top notch passive and active offering, though I note they’ve carved out iShares.
There are also firms who fit a category say 90% and then have a diversifier (e.g. a firm in category 2 which has a strong private markets offering).
Fundsmith is not a `capacity constrained small cap strategy,' are you kidding me? They own PayPal / MSFT / Intuit / Facebook / L'Oreal / Novo Nordisk / EL / Philip Morris / Stryker / IDEXX as the Top 10 weights. None of these are even mid caps (most are mega gaps)....
Not all boutiques run small cap strategies, hence the ‘eg’, which I think you missed.
You shouldn't be asking which firms, you should be asking which strategies won't go extinct as you can have a given asset class at a thriving firm die due to the growth of passive. For the most part, Private and Illiquid Public Fixed Income as well as Alternative inv like previously mentioned are your best bets. You also have many AM's moving heavily into impact and fully sustainable type investing too in Equities which are allowing them to generate alpha despite underperforming in overall activist Equity investing.
why does applying the sustainability filter give alpha???
Currently working to help do the ESG piece mentioned in the above comment. It really does look like ESG can be something that sets funds apart, not only the integration side but the impact side. Is the impact side a bit of a gimmick, sure, but people want to buy it and it makes money, and at the end of the day that's what matters.
I'm super curious to see if Private Equity investments made by larger LO firms will work out. I think they will but am curious to see what happens.
Fixed Income has been a much bigger point of speculation. I think that it will work out for good in the long run in terms of generating alpha.
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Curious about an LO's take on private credit
I’m highly skeptical. Where are the synergies with other parts of the business? Why would LPs allocate to a LO over someone with focus and a track record? Do they have the Sponsor relationships? What’s their differentiator in an increasingly crowded space?
Fixed income is very different from private credit, which I view as much more akin to buyout PE
As someone who's entering the world of active equity investing, this is something I think about a lot, and I've had conversations about it with folks in the industry. A consistent theme I've noticed is that large-scale firms that are vertically integrated within the space (i.e., that have channels by which to maintain flows) will be able to better endure headwinds. Similarly, firms demonstrating strong performance in a particular niche will also have a leg up. This kind of implies that the 'middle' will end up being hollowed out.
Can you elaborate / give some examples on your vertical integration point?
Like others have mentioned, active management has much more alpha generation opportunities in the FI world than equities. This is why despite Bill Gross leaving in 2011, PIMCO's AUM is still reaching all time highs and now at ~2.2T. Active equity shops like Wellington, Fidelity, TRowe face headwinds but they continue to attract the best investors in the industry so they will be fine. Like others have mentioned, alternatives like VC, PE, and PC will continue to be an emphasis even at these large institutional AMs.
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