Reversing the Fortunes of Active Funds

Recent years have witnessed a considerable growth of passive funds at the expense of active funds. This trend picked up in 2019, a year that saw passive funds surpass active funds in total assets under management. The continuous decline of active funds is a cause for concern. Active funds engage with and monitor management and participate in their portfolio companies’ decisions. The costs of these activities are born exclusively by active funds; the benefits, by contrast, are spread over all shareholders, including passive funds that free-ride on the efforts of active funds. Consequently, the contraction of active funds threatens to … Read more