The big risks from the significant fund flows from active to passive mandates

Amid rapid growth of passives

Niels Jensen, CIO of Absolute Return Partners, takes a closer look at the longer-term implications for investors of the rapid growth of passive strategies.

Global markets have been sucked into a risk on, risk off environment since 2008. Correlations between risk assets will be much higher than usual in a risk on, risk off environment. When risk assets are highly correlated, investment managers struggle to find alpha, and nowhere has it been more painful than in the equity space.  The result is clients can't understand why they should pay the higher fees for active management when results are no better, and in many cases worse, than when investing passively.  Consequently, large sums of money have moved from active to passive equity ma...