"A Few Surviving Winners Managing Large Amounts of Capital"
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Wednesday, July 27, 2016

"A Few Surviving Winners Managing Large Amounts of Capital"

An analyst who watches the mutual fund industry is painting a bleak picture of fundsters' collective future.

In a new Moody's report, "Asset Managers -- Global: Industry Flows, Actively Moving to Passive", vice president and senior analyst Stephen Tu and his colleagues write that, "given the scalable nature of quantitative investing, the large number of smart beta managers is also likely to shrink to a few surviving winners managing large amounts of capital."

Barron's and ETF Trends both highlighted the Moody's report.

Tu and his colleagues worry about the efficacy of active asset managers M&A activity, like buying each other or buying into the ETF and smart beta businesses. The report includes concerns about overcapacity in the active asset management space.

"These managers view M&A as a strategy to address the passive trend," the report reads. "However, although there may be cost synergies, in most cases, this type of M&A is not a long-term solution since it does not reduce the amount of capital managed by active managers, so overcapacity continues to hamper performance [of asset managers' stocks] ."

"A fundamental rethinking of the traditional active mutual fund industry as a whole is required, including a re-emphasis on investment performance over growth and marketing, and more discipline in curtailing AUM and management costs," the Moody's folks conclude in the report.

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