Less than a quarter of institutional investors said that actively managed portfolios were worth the additional cost, according a new report by Allianz Global Investors.
This report – which surveyed almost 500 global institutional investors, with more than $15 trillion under management – found this problem was particularly acute in the US, where just 17 per cent of respondents agreed that actively managed portfolios were worth the cost. This compared to 23 per cent globally.
The report points out that confidence in active management remains low and the industry needs to do more to regain the trust of investors.
However, the report pointed to areas where there was potential for active managers to deliver value.
Six out of 10 (61 per cent) of respondents surveyed said they thought thought active management was the best investment option when the underlying components of markets show little correlation.
Meanwhile further seven out of 10 (71 per cent) said they thought active managers were best placed to capitalise on the investment opportunities presented by digital transformation.
The report also asked investors about their top concerns for 2019, with 80 per cent saying they were most worried by market volatility, 79 per cent by monetary policy and 75 per cent by inflation. Nearly nine out of 10 (87 per cent) of those surveyed said investors have become complacent in the decade since the financial crisis.
The report identifies five key areas where asset managers should focus on upgrading their services to win greater confidence and long-term commitment from investors.
These included offering innovative risk approaches — less than half of the investors surveyed feel they have the appropriate tools/solutions to deal with tail risk.
Another key aspects is ESG investment. The report found that more than seven out of 10 institutional investors plan to manage all of their assets in an ESG conscious way by 2030. However six out of 10 admit they are confused by the current options, so are looking for additional guidance on this. What’s more, six out of 10 (61 per cent) of the investors surveyed said they thought active managers are better stewards than passive ones.
Investors are also seeking more information and guidance on alternatives: 45 per cent say they are deterred by an overabundance of new products, with 61 per cent saying they would allocate more to alternatives if the strategies were clearer.
Investors also want active managers to adopt technology to enhance client outcomes – 61 per cent of institutional investors believe active managers are better able to capture market opportunities by taking advantage of AI and big data.
Finally, investors want active managers to champion innovative fee models – 68 per cent said they would like fee structures that adjust with performance.
While important, the report found that performance is not the only factor influencing investors’ choice of managers, with 48 per cent saying it was one of their top three priorities in manager selection.
Allianz Global Investors chief executive Andreas Utermann says: “This report should serve as a wake-up call for those parts of the active asset management industry that have yet to grasp just how fundamentally our industry is changing.
“In today’s challenging market environment, active management is more relevant than ever. In fact, only active management can provide the type of tailored, bespoke solutions needed to meet many of the investor challenges identified in our report around disruptive technology, innovative fee models and ESG.
“But investment managers must maintain a laser focus on delivering for clients to be able to stand out and thrive in a crowded and consolidating market.”