“Passification” is the process through which investment categories once dominated by active managers are being captured by index-linked strategies. To avoid being passified, active management business strategies can take three dimensions.
1. Focus on passive-resistant categories
2. Employ high “degree of investment freedom” strategies
3. Redefine the current passive-biased framework
Following from our recently published “Periodic Table of Fund Flows,” we have created a Chartbook exploring the flow dynamics of liquid alternative funds – one of the fastest growing categories since 2008.
With all of the excitement and noisy positioning around Newcits, hopes for broad adoption and strong inflows are sky high. But don’t confuse motion with progress. Without an evolutionary leap beyond dependence on an outmoded asset allocation framework, this whole thing is going nowhere in a big way.
The influence of alternative ideas and approaches constantly redirect and reinvent the mainstream. Innovations first introduced outside of the mainstream and, in many cases, defined as counter to it, become broadly adopted and eventually accepted as mainstream themselves.
Convergence and engineered evolution within large parts of what is termed traditional and alternative investments have entered a state of general acceptance. There are considerably fewer detractors to the idea than five years ago (particularly as it has become reality) but still a lot of confusion about its implications remain.
Over the past couple of months, I have been re-evaluating many common tenets of the manager selection process. My goal has been to separate what is done out of convention, habit and convenience from what is actually meaningful when identifying great managers.