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Lyxor finds traditional ‘core’ active asset management is shrinking


Lyxor Asset Management’s Chief Investment Officer Nicolas Gaussel has identified a key trend that has dominated asset management since the turn of the millennium – the shift of assets away from traditional “core” active mandates.

Writing in a recent Expert Opinion he quotes a 2014 study by Boston Consulting Group (BCG), which found that active core assets represented 63 per cent of global assets under management in 2003, but that looking forward, this figure is likely to fall to 40 per cent by 2017.
“Investors worldwide have been moving away from traditional active management into alternatives, dedicated active mandates, solutions and liability-driven investment (LDI) schemes” Gaussel writes. There is also a big rise of passive funds in allocations, including exchange traded funds (ETFs).
“So we are witnessing a bipolarisation of the asset management market: increased demand for specialist active management, on the one hand, and for passive mandates on the other. Traditional active managers are under increasing pressure to justify their roles.”
While he finds that passive and active funds are complementary for portfolio construction, he believes that future portfolios will include an important allocation to smart beta, as well as to traditional beta and to active management in the form of alpha.
In the same report, Arnaud Llinas, Lyxor’s Head of ETFs & Indexing agrees, commenting that smart beta is expanding the traditional definition of passive investing, and in a way that offers investors a valuable new tool.
He writes: “Various types of portfolio strategy traditionally undertaken by active investment managers can now be replicated efficiently and at low cost via smart beta indices. In other words, passive funds are increasingly being used to give exposure to strategies that were historically offered only in an active format.”
Llinas believes that to some extent, smart beta is also likely to replace some of investors’ traditional allocation to passive funds, tracking indices weighted by market capitalisation.
Gaussel concludes: “Asset allocation approaches are evolving to take into account the broadening range of low-cost, index-based solutions and the growing evidence that alternatives are the true form of active management. We believe that combining traditional beta, smart beta and alternatives in a portfolio provides a very effective and powerful solution for the average investor.”

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