Trustee and Fiduciary Services Global Asset Management Industry Insights

Global Asset Management Industry Insights 9 THE ACTIVE-VS-PASSIVE DEBATE With the continuing rise in assets under management of firms providing passive funds for sale, it’s perhaps surprising that 37% of respondents are unsure whether their firms will be launching passive vehicles in the next few years. However, 35% confirm the intention of their firms to increase the number of passive funds in their investment stable, while 8% advise the intention is to increase active rather than passive fund launches. What’s more, 20% confirm no intention to launch passive funds in the next few years. Does your firm plan to increase the number of passive funds it offers over the next few years? Q3 8 % No, we plan to increase our range of active funds 20 % No 35 % Yes Subsequent to the issue of our survey, an interesting development, long in the making, saw the U.S. Securities and Exchange Commission provide final approval to a firm for an actively managed non-transparent ETF on 21 May 2019. It’s likely this will lead to a spate of similar requests, and, while much too early to say whether this will move the dial positively in favour of active funds (and the current 8% we observe for future launches), it certainly has the potential to draw assets not only from passive vehicles but from mutual funds too. Against this backdrop, it’s also worth noting IOSCO’s work programme for 2019, published in March. Among its five identified priorities, passive investing and index providers feature. IOSCO will initiate a review of the impact of passive investing on markets, noting that, as of 2017, passive asset management strategies are estimated to represent USD8 trillion globally, representing 20% of assets under management. Questions have been raised about whether the growth of passive investment affects the price- discovery process, the allocation of capital and corporate governance. IOSCO states it will also undertake a conduct-focused mandate on the role of index providers in asset management. With continued regulatory and investor focus on fee compression and the wider use of cost disclosures under MiFID II and PRIIPs in Europe to consider too, it will be interesting to observe over the following few years the next turn to be taken in the ongoing active/passive debate. 37 % Don’t know