Such expectations have found money managers tweaking their business plans rather than rewriting them.
“I’m certainly not investing as fast in certain types of initiatives that have a long cash burn,” Pinebridge’s Mr. Ehret said. “But there are certain places where we can see shorter cash burns as being good investments and so … we continue to look feverishly for opportunities to invest in smart investment teams,” focused on private market strategies as well as Asia-Pacific-related opportunities, he said.
Meanwhile, the prospect of a bumpy, directionless market should bring opportunities as well as challenges, market participants say.
In this year’s newly volatile environment, “it may be easier to demonstrate the value proposition of active management after many years of market share gains for lower-fee passive products,” Mercer’s Mr. Coxeter said.
“Skill-based returns could be more important contributors to total portfolio outcomes over the coming years than they have been over the last decade, with the potential to enhance returns and diversify risks against a backdrop of lower returns from traditional betas,” he said.
Money managers are making similar arguments now.
Because of the volatility and the uncertainty, “you’ve got to be active, because no one is going to be able to call the bottom … and it’s going to be really difficult to be passive and kind of buckle up and be along for the ride,” said Kimberley Stafford, managing director and global head of product strategy with Newport Beach, Calif.-based Pacific Investment Management Co. LLC.
With all of the risks at present, “you just don’t want to be tied to an index,” she said.
Natixis’ Mr. Chemouny struck a similar tone. “This is a wonderful period of time for active managers … because if you’re buying the indices, there’s only one way that the direction of travel is, volatile and at this stage negative,” he said.
“When it’s bumpy, we need to determine when I should come in, when I should come out and what is the quality of the stocks that I have,” a challenging backdrop for maintaining passive exposures, he said.
Still, CREATE-Research’s Mr. Rajan noted that in the prior two periods of extreme market volatility — the global financial crisis of 2008-2009 and the pandemic sell-off of 2020 — active managers failed to distinguish themselves.
In both of those instances, however, extraordinary policy support led to powerful market rallies, effectively bolstering beta over alpha. It’s unclear whether the anticipated absence of such support this year, amid continued inflationary pressures, will give alpha-focused managers a more sustained boost.