Global Institutional Surveys Reveal Support for Active Management

March 27, 2019

Active management will continue to play an important role in institutional investors’ portfolios, according to two separate global surveys of institutional investors by investment industry heavyweights – Fidelity Investments and BlackRock – which revealed investors intend to increase their use of active in the coming years.

The Fidelity study found that “looking ahead to 2025, when asked to share their portfolio construction strategies, institutions with $1 billion or more in AUM generally expect to make the most significant changes to their asset allocation, including increasing investments in active, non-traditional passive, alternatives, and unconstrained strategies and derivatives.”

According to Fidelity, the expansion of the use of active management strategies is due in large part to investors’ concerns over an impending low-return environment and market volatility. The largest study of its kind, the Fidelity Global Institutional Investor Survey examines what’s top-of-mind for 905 institutional investors across 25 countries representing $29 trillion in assets under management (AUM).

A survey by BlackRock of more than 200 institutional investors globally found that investors favor active equities over the long term. While the use of index strategies has increased in recent years, institutional investors say that the importance of active equity strategies in their portfolios has not diminished, according to the report.

The BlackRock survey “reveals important insights around [investors’] use of active equities today, future allocation intentions, attributes they value most in their equity managers, and views on the use and power of technology, among other factors.”

Some key findings from the BlackRock survey:

• Investors are committed to active strategies regardless of market environment. Forty-four percent of respondents expect to have a high concentration of their equities in active strategies five years from now.

• Investors recognize that active and index strategies do not represent an “either/or” choice. Two-thirds of survey respondents seek the right combination of active and index equity strategies to meet their investment outcomes.
• Investors look to active managers for multiple areas of expertise and are willing to pay for active management if it measures up to expectations. Respondents’ top selection criteria for active equity managers include risk-management capabilities, fiduciary record and reputation, and access to new asset classes, markets or strategies. Less pressing are concerns about management fees.

Both surveys – of sophisticated audiences – reinforce several key themes on investing. First, active management adds value to portfolios on a risk-adjusted basis. Academic research suggests that investors can identify skilled managers in advance. Also, active and passive management work well together as each has strengths. Active management enables investors to navigate complexity, to customize portfolios, to capitalize on specific skills or to profit from market inefficiencies. Passive management helps reduce costs while providing diversified exposure to an asset class, sector or region. Lastly, active management is essential for healthy markets and economies, because active managers ensure prices remain in line with underlying fundamentals.