Welcome to the Active Managers Council
December 14, 2018
Investment Adviser Association (IAA), the leading trade association representing the interests of SEC-registered investment adviser firms, formed the Active Managers Council (AMC) to support education and research on the value of active management for investors and the capital markets and to engage on relevant public policy issues.
Active management represents the majority of investment assets globally, but over the past 20 years, the public perception of active management has shifted with the rise of passive products such as Exchange-Traded Funds. The narrative seems to be that passive management is cheaper – and therefore better, while active management underperforms, largely because of fees.
But this one-dimensional characterization of active management misses many of its most important attributes. Active management is:
- A key component of investment portfolios, for both individuals and institutions
- A value-added contributor to portfolio returns
- An essential element of any financial plan
- A critical driver of the health of the financial markets
- A major contributor to the strength of the economy
In other words, active management provides an important service to investors, the markets and the economy. Through research papers commentary and educational material available through its new portal, the AMC aims to be a valuable resource for investors, advisers and policymakers seeking to learn more about the role of active and passive investment strategies.
Our work is based on the following four concepts:
Active management adds value
Contrary to the conventional wisdom, active managers can predictably add value for investors on a risk-adjusted basis as underscored by an academic review underwritten by the AMC. Many managers have provided superior results over long periods. At the same time, investors can identify these skilled managers in advance, by looking at past performance, investment approach and manager characteristics.
Given its value, it’s no surprise that active management remains the primary investment approach around the world with $108.7 trillion to be actively managed globally by 2025 according to PwC .
Active management is a part of every investment decision
Every investment decision involves an element of active management. Even the decision to invest in an index fund requires active choices (which fund? how much? when?).
Active decision-making is a key component in financial planning, including retirement planning, which involves structuring a multi-asset portfolio to align with an investor's needs. Put simply, individuals cannot meet all their investment needs by buying a single index fund.
Active management and passive funds work well together
Active management and passive management each have their strengths and weaknesses. Active management enables investors to navigate complexity, to customize portfolios, to capitalize on specific skills or to profit from market inefficiencies. Passive management helps to reduce costs while providing diversified exposure to an asset class, sector or region.
Most investors will benefit from a combination of the two approaches, with the mix determined by their particular objectives, skills and risk-tolerance.
Active management is essential for healthy markets and economies
Active managers perform the investment research that makes markets efficient. They ensure that prices remain in line with underlying fundamentals. Without their work, markets would be more volatile, less liquid and more unpredictable.
In addition, active managers play an important role in corporate governance, by encouraging strong stewardship and a shareholder orientation at the companies they invest in. Finally, they support capital formation and entrepreneurship by providing a market for IPOs and other forms of capital raising.
To stay up to date on the new narrative on active management, be sure to visit the Active Managers Councils website.
*Morningstar's Annual Fund Flow Report