Active managers need to start incorporating the lessons of behavioral science if they have a chance of reversing the flow of assets into passive investment vehicles.
By Clare Flynn Levy
Clare Flynn Levy is CEO & Founder of Essentia Analytics. Prior to setting up Essentia, she spent 10 years as a fund manager, in both active equity (running over $1B of pension funds for Deutsche Asset Management), and hedge (as founder and CIO of Avocet Capital Management, a specialist tech fund manager).
Forgive me for stating the obvious: Traditional active management is increasingly vulnerable to the economics of passive investing. It’s a trend mostly fueled by the disappointment in active fund performance net of fees.
What’s not obvious is how to reverse this trend and keep active investing kicking. Suggestions range from optimizing product and channel strategy to seeking deeper operational efficiencies in areas such as IT. That’s all well and good, but I’m convinced that any serious soul-searching by active managers must be extended to include a review of the investment decision-making process itself.
In our white paper, Can Traditional Active Fund Management Be Saved?, seasoned equity markets professional Eric Rovick explores how active investment processes are often prone to cognitive biases and risks. He then provides a managerial and operational framework for addressing them, arguing that to boost performance and survive, active managers must incorporate the lessons of behavioral finance in their investment decision-making.
This free resource is a must-read for any investment management leadership team looking at how to not only survive, but to thrive, in the coming years.
To download the full paper, simply complete the form below. I’m excited for you to give it a read – it’s every bit as relevant today as it was when first published in 2016.
