Investors will increasingly abandon traditional and benchmark-based active investments in favour of “new active,” outcome-oriented investment strategies during the five years ending in 2018.
This is according to a new white paper called Life After Benchmarks: Retooling Active Asset Management by Casey, Quirk & Associates LLC.
“New active” strategies, which erase the distinctions between traditional and alternative categories, will attract $3.4 trillion of inflows over the next five years, according to the Casey Quirk analysis. Passive, or benchmark-tracking, investments will take in almost $1 trillion over the same period. But traditional active strategies will suffer $1.8 trillion of outflows due to shifting investor demands, endangering asset managers worldwide that remain committed to legacy investments, according to Casey Quirk.
The Connecticut-based management consulting firm predicts that flows into “new active” mandates—including unconstrained bond and equity investments, private capital, trading strategies, dynamic multi-asset class strategies and real assets—will produce $262 billion of fee revenue during the next five years. This is close to 45% of the global asset management revenue.
By contrast, the revenue opportunity from low-fee passive investments will amount to $20 billion over the same period. Approximately $322 billion of fee revenue opportunity will come from traditional benchmark-based active strategies, but with the anticipated outflows, asset managers will compete for a shrinking slice of the market, Casey Quirk predicts.
“Active managers able to meet investor demands for outcome-oriented solutions will enjoy growing opportunities,” says Daniel Celeghin, partner at Casey Quirk and author of the white paper. “Managers unable or unwilling to retool their legacy investment culture will face severe headwinds.”
The transition to “new active” strategies is currently being led by the world’s largest institutional investors and their advisors because their cash-flow needs have become more acute in an increasingly volatile post-crisis paradigm. However, Casey Quirk expects investors of all sizes and types around the world to seek out similar, more outcome-oriented asset allocation frameworks.