an amazing stat

The Financial Times today:

The assets of the world’s largest 500 fund managers have fallen for the first time in five years as investment houses continue to grapple with outflows from some of their biggest clients.

Total assets fell by $1.4tn to $76.7tn — the first decline in funds under management since 2011, with European investment houses experiencing the biggest falls…

According to the research, the assets held by US fund managers fell 1.1 per cent to $44tn in the year to the end of 2015, while assets managed by European managers fell by 3.3 per cent to $25.1tn.

What’s going on? Large pools of capital are bringing the money to manage in-house, using passive vehicles in many cases or strategic beta in others. Elsewhere, globally, governments are under pressure to offset the decline in oil prices, and their sovereign wealth funds are being tapped, leading to outflows from their outside managers. It’s amazing that this is happening against the backdrop of the largest stock market on earth (the US) trading within a points of all-time highs, not to mention the global bond market at historically low yields.

I said this was where things were heading in February, but I never imagined we’d see the trend accelerate like this. This is from ‘Mediocre Asset Management is No Longer an Actual Business‘:

The new rules in the age of the internet – put up or shut up. If you’re not delivering alpha to the advisors and investors you want to use your products, then save the monthly outlook commentary and full-page ads in Barron’s for your mama.

There’s too much information available for closet indexers charging 100 basis points over the index for stock selection to continue to have a viable business. And the lesson that everyone learned 8 years ago – that a decade’s worth of alpha can be lost in a few bad months – won’t soon fade.

One of the legendary active managers still in the game, Bill Miller, agrees with this and posits that we could see an even greater shift from mediocre “closet indexers” to either passive products or real active managers. Miller thinks passive could ultimately take 70(!) percent of the world’s assets under management before it’s over. Read his take at Barry’s Bloomberg View column now.