Friday, June 21, 2019



BY PHIL DESANTIS, Westwood Holdings Group

As a high-performing equity market environment lifted most stocks over the last decade, the value proposition for active management in efficient asset classes such as U.S. Large Cap has been scrutinized by both institutional and retail investors alike.

Low active share, otherwise known as “closet indexing,” high turnover and lofty management fees all contributed to a trend of marginal performance results for active products relative to benchmarks. In response, many investors have chosen to reduce their allocations to active managers and increase passive holdings, particularly in efficient asset classes.




During this period of dominance by passive products, the relationship between asset owners and investment managers has transformed, increasing fee pressures to improve alignment over existing fee structures. While overall fees have come down over the last decade, the industry has done very little to truly level the playing field for investors and solve the real problem — aligning fees to the value of active management and improving the probability of a favorable outcome depending on manager skill and the efficiency of the asset class.


Mutual fund investors paid a staggering $100 billion dollars in expenses to underperforming asset managers over the last ten calendar years.

We believe the industry is primed for a major disruption that will better reflect the value- added returns of active management by solving the fee problem, altering the probability of winning for investors, and in turn radically changing asset allocation decisions.

Read more in our whitepaper, “Mission Possible: Changing the Probability of Winning for Active Investors.”

The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of Westwood Holdings Group nor TEXPERS, and are subject to revision over time.

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