Confronting Passification: Three Ways Forward For Active Managers

“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

Pick a Side: Investment Freedom, Flows and Fees

We applied our proprietary Degree of Investment Freedom framework to a broad category of fixed income funds and found a remarkably strong relationship between the direction and levels of flows and fees with the level of freedom employed by managers. At the extremes, active and passive funds have both been flow winners. The real challenge is avoiding getting stuck in the middle.