Rising inflation is giving active fund managers a chance to claw back business lost to low-cost funds after the market crisis cast doubts over their ability to make money for clients.
With low interest rates and rising inflation making cash-like products unappealing and market volatility diminishing the allure of cheap index tracking funds, many investors are being forced back into active funds.
'There is a tremendous opportunity for investment managers to provide propositions — for a fee — to deal with that risk. In a high and rising inflation scenario, active management ought to be really key,' said Tom Brown, head of investment management for the EMEA region at KPMG.
Research house Cerulli Associates estimated while global assets recovered to pre-crisis levels last year, revenues were still $10 billion short of 2007, partly because of a reallocation to passive from active management.
'Institutional investors are moving again to ... very high conviction portfolios. That is because of their need for returns and that includes inflation (rises),' said Bernhard Langer, chief investment officer of global quantitative equity at Invesco.
Langer, who oversees $25 billion, told Reuters he was seeing especially strong demand for high conviction equity products in the United States.
Products aiming to deliver returns above markets while managing downside risks were in demand, said Elizabeth Corley, Europe chief executive of Allianz Global Investors and a speaker at the Fund Forum industry conference in Monaco.
'That is what clients like, and that is growing faster than any other part of our business,' she said.
Rick Lacaille, global CIO at State Street Global Advisors said on the sidelines of the conference on Monday that while index-tracking investments remained popular, demand for more sophisticated funds offering potentially market beating returns was on the rise.
'There is still great appetite for indexed funds but that much more concentrated, high-return portfolio is also growing,' Lacaille said.
There is still plenty of criticism of active fund management which charges relatively high fees for a premium service that can fail to deliver.
A separate Cerulli study conducted earlier this year revealed that out of a sample of 69 European absolute return funds — meant to deliver returns in any market condition — with more than five years track record, only six posted positive annual returns since inception.
The respondents told Cerulli that absolute return was 'more an aspiration' than something they would necessarily deliver every year said Yoon Ng, the report's author.
In a rare acknowledgement of the industry's limits, Bill Gross, co-CIO at PIMCO, the Allianz fixed income subsidiary, recently said fund managers sold 'hope' in exchange for generous fees.
But despite the criticism, Fund Forum attendees said they have seen no significant fee pressure.
'I would almost go as far as saying that in the last three years the prices were constant,' Langer said.
Allan Polack, chief executive of Nordea Asset Management, said the largest Scandinavian asset manager had seen no big challenges in defending fee levels, while SSgA's Lacaille said fees for the active management range were stable.
Source : New Age
