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Active asset managers are on the precipice of a $74 trillion problem, according to Bloomberg. Every day investors that have been frustrated by poor returns and higher fees are shifting their money out of actively managed funds and into passively managed funds, as we have documented on this site for sometime.
As we have noted, this has sent fees much lower, while forcing active managers to make job cuts. This means that the $74 trillion industry is on the verge of what will likely be a historic shakedown where only the best managers will survive.
Philip - Darling - Head - Partnerships - Buy-Side
Philip Darling, head of partnerships at The Buy-Side Club said: "We're clearly at a watershed moment".
The analysis looked at fees, personnel and performance data across the industry and revealed how difficult the environment has truly become.
Ben - Phillips - Principal - Investment - Management
Ben Phillips, principal and investment management chief strategist at consulting firm Casey Quirk said:
"The combination of fee competition, rising costs and asset growth is creating never-before-seen pressures on asset managers. That creates a really bitter cocktail for an industry that never had to worry about fixed costs, fees or money showing up. The entire industry has been caught flat-footed. Nobody saw it coming. That sounds a little glib, but nobody acted to get around the corner first.”
Investors - Nothing - Beeline - Investments - Years
Investors have done nothing but make a beeline into passive investments in recent years. Index funds are going to overtake active management by the year 2021, according to estimates issued in March by Moody’s Investors Service.
And this isn't the first time that active management has been criticized. Princeton University economist Burton Malkiel in 1973 "compared the prowess of money managers to a blindfolded monkey throwing darts to pick stocks".
Jack - Bogle - Vanguard - Managers - Fees
Additionally, Jack Bogle, who founded Vanguard, often noted that he thought active managers weren’t worth the fees that they charged.
Regardless, this sentiment never really caught on until...
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