The Rise of Passive Funds and Importance of Private Manager Selection
Karl Rogers, Chief Investment Officer at Elkstone
In this article Elkstone CIO Karl Rogers outlines how passive funds dominate public markets due to the lower dispersion of active managers and a lack of persistency of outperformance, while selecting manager selection is crucial in private markets, as manager return ranges are substantial and manager persistence is more evident.
In public markets, passive funds are outperforming their active counterparts, mainly due to lower fees and the efficiency of developed markets. The gap between top and bottom active managers is minimal, making active management often unnecessary. However, in private markets, the story is different. Fund manager selection is crucial as the range of returns is significant, and successful private market managers tend to maintain their advantage. Investing in private markets demands a more engaged approach, highlighting the critical role of skilled fund managers for higher returns.
Some key insights from Karl include:
Public Markets: Passive funds now dominate due to their lower fees and the efficient nature of developed markets. Actively managed funds have consistently underperformed against indices.
Performance Dispersion: In public markets, there is low variability between top and bottom fund managers, making manager selection less impactful.
Private Markets: Fund manager selection is crucial in private markets due to higher dispersion in performance and greater persistence. Top managers significantly outperform, making careful selection vital for better returns.
Engagement: Private market investments require more active involvement from fund managers, impacting company growth and creating a positive feedback loop for successful managers.
Read the full article on The Business Post here