Future of AM: Where is capital flowing?
I work at a traditional AM, we focus down cap and it’s a traditional relative value type of investing with 2-5 year holding periods. Performance has been okay but assets seem to keep flowing out, and when I talk to other shops it doesn’t seem like anybody is raising money using this approach. My question is where is the money flowing, and is this industry just in structural decline or is this cyclical? Would be curious to hear people’s thoughts.
Based on the most helpful WSO content, here are some insights regarding the future of Asset Management (AM) and capital flows:
Shift to Passive Investments:
Cyclical Nature of Markets:
Industry Adaptation:
Fee Compression and Outflows:
Opportunities in Alternatives:
Behavioral Finance and Sector Allocation:
In summary, while traditional asset management faces challenges, the industry is not in a structural decline but is undergoing significant changes. Adapting to these changes and exploring alternative investment opportunities can provide a path forward.
Sources: Is value investing dead?, Is Asset Management shrinking?, Is there any part of the financial industry that is growing?, CRE Trends That Are Emerging Now and Will Prevail Throughout Our Careers, Will asset management industry just wither away?
Bump
The WSO bot's answer actually summed it up pretty well.
Yeah I don’t think the bot said anything I didn’t already know, but curious to hear people’s outlook?
My outlook, and the outlook of others that has been shared over the last few months on this forum (feel free to search)...is pretty much in line with what the bot said lol.
Yeah I mean I get it, you have indexing, then you have switch to PE, my question is more does this reverse, and as somebody who is still young is this still a good career path or should I get out while I can?
Unless you are convinced you can make PM and do well consistently with a well-articulated thesis... I'd advise to get out while/if you can. I see capital flowing to private markets more and more while public markets are struggling to rationalize fees to clients/consultants even when 3-, 5-, 10-years numbers are in top 5%..
https://www.wallstreetoasis.com/forum/asset-management/best-time-to-com…
Yeah makes sense, but is there any scenario where this does reverse, or are we all just screwed?
The above post is pretty spot on
LO equities is growth challenged.
If you think of yourself as a stock and/or business analyst.. you should do the same analysis on your career aka your biggest investment. what would you value a company that is in secular decline selling a commodity product and facing outflows and fee compression? If you are a senior partner or PM you can keep clipping your slowly declining coupon until you retire, but if you are young are trying to get promoted/grow/get more responsibility… it’s hard to do that in a business that is dying each year
Aside from pure passive - active ETFs, factor strategies, systematic funds. Still seeing good flows into active FI funds but it’s a hustle for active fundamental equity to retain any market share at the moment.
You think any chance it reverses? Feels like PE is bound for a period of underperformance, especially given a lot of bad deals made with ZIRP interest rates, they just aren’t selling the assets but you can’t do that forever. Then with passive there has to be a saturation point, the whole market can’t be index funds.
The whole market doesn’t need to be index funds to hurt public AM. There just has to be enough downward pressure on compensation and open seats from 1) Other asset classes like PE etc 2) Fee compression 3) Passive investing 4) Automation
There also are fewer competitive advantages. Data is more important than ever, and it’s expensive. I don’t mean Bloomberg, I mean alternative data etc.
Some areas like small caps or micro caps might be less exposed to this. But then you’re dealing with an increase in market players.
PE is a solid place to me because it’s more based on qualitative skills, so even from a labor pool standpoint you can’t be beaten out by scores of ESL quants from other countries, or even funds from other countries. At least relative to publics
Agree here. Still seeing good flows into active FI. Particularly in global high yield and Private Credit strategies. Notably, even for Euro High Yield we're having substantial interest, and we can have an hour long discussion on the many, many issues with the Euro market but that's a topic for another day!
90% of LOs are trading the same theses pushed by the sell side / consensus. There is no alpha in mediocrity.
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