There is still a place for active management, which can benefit from the "competitive asset management marketplace" the rise of passives has created, according to Lyxor and the Université Paris-Dauphine's House of Finance.
The report, titled What role has passive management left for active?, said active management still has a "vital" role to play in the financial ecosystem.
The rise of passives over the past decade has been well documented with assets in global ETFs passing the $5trn mark in January.
According to Morningstar, passive funds represented 27% of total funds managed in 2017, up from 16% in 2010.
Furthermore, in a recent report, Moody's Investors Service predicted passives would account for 25% of the European market by 2025.
Marlene Hassine (pictured), head of ETF research at Lyxor, commented: "The idea active management is in a terminal decline is truly exaggerated.
"In fact, the research shows that active management benefits from the readier availability and greater use of passive tools."
The report attributed this to the rise of passives, which has increased competition within the industry, meaning active managers are now "forced" to generate true alpha if they want to attract flows.
"Ultimately, the increased role of index-based investing is more an opportunity than a threat for active managers," Hassine continued. "It creates a more effective equilibrium where each management style has a distinct role to play."
Furthermore, the report noted the increasing availability of smart-beta funds was further putting pressure on active managers to demonstrate true alpha.
"While ETFs are helping generate a more competitive asset management marketplace, they will not replace the best-performing active managers," the report said. "But, in turn, those active managers must be able to show they can beat not just the market index, but smart beta indices as well."