A survey of institutional investors conducted by Natixis Investment Management back in 2015 found that global investors had expected over 40% of total assets would be in passive products by now.
The latest research from Natixis revealed that in fact at the end of 2017, 32% of total assets were invested into passive strategies, with institutional investors projecting only a 1% increase over the next three years – a growth rate well below what many of the passive product providers are projecting.
The Natixis research found that market volatility expectations had encouraged institutional investors to turn to active managers and alternatives to diversify their portfolios and mitigate risk.
Oliver Bilal, head of international sales and marketing at Natixis, said: “The active versus passive debate doesn’t look set to disappear, as institutions have signalled a gradual shift towards active strategies”.
Active attractions
Around 57% of the institutional investors surveyed by Natixis for its latest report said they expected actively managed funds to outperform passives over the long term, despite 76% believing alpha was becoming harder to obtain as markets became more efficient.
While 90% of institutional investors said minimising management fees was one of the strongest drivers for passive strategies, 75% said they were willing to pay higher fees for potential outperformance.
Another three-quarters said they preferred active over passive strategies to access emerging market opportunities, while 69% said they favoured the risk-adjusted return aspects of activley managed investments, and 70% liked that they provided downside protection.
“The traditional arguments about the cost saving potential of passive products are being challenged, as institutions see the long term value that can be generated by active management and the access it can grant to a broader range of asset classes,” he said.
Alternatives liked
Natixis also found that 70% of global investors believed it was essential to invest in alternatives and that 57% thought this was necessary to outperform in the broader market.
However, when looking at Morningstar’s global category, the highest net asset flows in January 2018 for an alternative strategy went to absolute return strategies at €5.6bn (£4.9bn $6.87) which came fifth out of 20 sectors.
The next alternative strategy in terms of net flows was alternative long/short debt at €1.8bn which came ninth, followed by alternative multi strategy at $1.2bn, property at €0.9bn, commodities at €0.8bn, alternative global macro at €0.6bn, and alternative long/short equity total at €0.5bn.
