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The common narrative that passive investing will overtake active management suggests a primarily passive future for investors. However, an analysis of fund AUM data across time and regions offers a starkly different perspective on the future of investment management. Contrary to popular belief, active management assets under management (AUM) continues to far exceed those of passive index funds. Even though index fund AUM has seen a 1,500-fold increase from 1989, it still only represented 32% of all fund AUM by the end 2021. Assertions about passive investing overtaking active management are largely based upon a few exceptions – most notably for equity funds in the US Large Cap Blend category, where index funds contain three times as much AUM as their active counterparts. In other regions and across asset classes, index funds are not nearly as prevalent. Generalizations based on US Large Cap Blend equity funds are misleading.

Looking forward, advances in technology will allow for comprehensive customization of portfolios curated to meet the specific needs and preferences of investors. Both active and passive pooled funds will be disintermediated by “hyper-managed” solutions that maximize net economic benefits and satisfy client objectives. Active funds are less likely to be unbundled but will need to clearly demonstrate an investment edge to thrive. We see the active versus passive debate becoming increasingly less relevant as hyper-managed accounts, that can incorporate the best of both active and passive elements, will generally overtake the use of standalone pooled investment products. 

Leading asset managers will evolve from offering portfolio products to offering portfolio services that develop and implement low-cost, highly customized total portfolio solutions. Successful deployment of hyper-managed accounts by firms will require extensive investment expertise, deep technology resources, and the ability to effectively collaborate with investors. We expect that both active and passive pooled investing products will be subsumed by highly customized hyper-managed solutions.  

Kenneth Blay is Head of Research for Global Thought Leadership at Invesco. In this role, he leads the development of original research through collaborations with investment teams, industry researchers, and institutional clients. 

Prior to joining Invesco in 2018, he served as vice president and advisory research manager at State Street Associates, where he led research engagements with institutional clients worldwide and collaborated with academic partners to advance studies in asset allocation, risk management, and investment strategy. Previously, he was director of research for 1st Global, where he established the firm’s investment management research group, led asset allocation policy, and managed the firm’s discretionary multi-asset portfolios. He has been in the financial industry since 1991.  

Kenneth has collaborated extensively with Harry Markowitz, Nobel Prize laureate, on developing and advancing various asset allocation methods, including the optimization of the net present value of future cashflows, tax-cognizant portfolio analysis, and simulation-based multi-period portfolio selection. He has focused his research efforts on practical asset management, including tax-efficient investing, retirement/liability planning, and systematic and factor investing. His research has been published in various leading industry journals and books, including Risk-Return Analysis: The Theory and Practice of Rational Investing (Volume 1), co-authored with Markowitz. He serves on the advisory boards of the Journal of Portfolio Management and the Journal of Investing, the advisory council of the Journal of Investment Management conference series, and on various committees for the Q Group (the Institute for Quantitative Research in Finance). Kenneth earned a BBA degree in finance from the University of Texas. He is also a Fellow of the Judge Business School at the University of Cambridge for Finance and the Centre for Endowment Asset Management (CEAM).

Dr. Marc R. Reinganum is an accomplished senior asset management and academic thought leader, bridging industry and academia. He is currently CEO of Compitium LLC, a firm that helps asset managers articulate, position, refine and communicate their unique investment edge. 

Dr. Reinganum’s decades-long academic career spanned senior faculty positions at major universities including University of Southern California, Southern Methodist University, University of Iowa, University of Chicago, and New York University.  Reinganum’s research is well recognized, and he is known as a founding father of stock market anomalies, particularly the “Small Firm Effect,” for which the Financial Analysts Federation honored him with the Graham and Dodd Scroll.  He has served on the editorial boards of numerous industry and academic journals.

Within industry, Reinganum served as Senior Managing Director at SSGA, managing active equity teams across seven cities on four continents that implemented global and regional strategies. He directly managed SSGA’s Dynamic Small Cap Fund, achieving the #1 rank in Morningstar’s category, over his five years at the helm. Prior to SSGA, Marc was co-head of the Main Street Team at OppenheimerFunds, serving as Senior Portfolio Manager and Director of Quantitative Research, managing $30+ billion across several funds, including a 5-star rated Morningstar fund. 

Marc earned his A.B. with High Honors from Oberlin College, and a MBA and Ph.D. from the University of Chicago.