Venture: Asset Management

In a recent issue of ByteTree Global Trends, the asset managers jumped off the page, especially in the UK. Having been in the doldrums for years, they have turned the corner in a group move.

When I joined the city in 1998, the asset managers were the cream of the crop. They had both market exposure (beta), plus excess returns as they beat the market (alpha). As a fund holder you enjoyed those returns but paid high fees for them, but as a shareholder you received those fees as well as the excess market return. These were some of the most highly rated stocks of their day.

Then came index funds (passive), which were followed by the boom in ETFs. Fees were slashed, and over the past decade, an era of big is beautiful, the passive funds beat the active funds. That can only happen when the biggest stocks are in the lead because no active manager is overweight the biggest stocks. In contrast, they tend to prefer mid-caps. If you believe the turn has come, and active managers, at least those that are left, are back in charge, then the market has seemingly forgotten what incredible businesses these are.