I recently attended an investment conference last week presented and I found this slide below quite concerning but not surprising.
Digging into the underlying data a bit more the share prices of each of the active managers below peaked at different times:
| Active Manager Name | Peak Share Date |
| Jupiter | 5 January 2018 |
| Schroders | 10 September 2021 |
| Liontrust | 17 September 2021 |
| Premier Milton | 15 June 2018 |
| Aberdeen | 29 May 2015 |
Source: S&P Global - March 2025
For those outside the investment industry, the share drop is somewhat perplexing given that the total return for the S&P 500 since 2015 the return was 12.03%. Considering that asset management companies are paid on a percentage of the assets they manage increasing asset values should lead to increased profitability. Unfortunately, it is not that simple. Exchange-traded funds (ETFs), technology and the rise of passive investment management are only a few of the reasons that have made asset management a very difficult business. Increasingly, asset management companies that are profitable rely more on volume and are part of large groups with a diversified business model. So, you not only have to be correct, but you have to be very large.
The share drop in the asset management companies should be a concern for investors given that these companies are managing your investments. A lower share price means that investment management companies don’t have the capital to invest in staff, resources and infrastructure. This is by no means stating that all asset management companies are in the same position, but that more asset management diligence is required. Within investment management, the debate between active and passive management is not new and will certainly continue to be debated. Some of the reasons for active management decline are high fees, high costs of regulation, failure to outperform benchmarks and the rise of passive investments. Passive investments are not risk-free either as I explained in this article. The Financial Times recently highlighted those 26 stocks now account for half of the entire value of the S&P index. During the week of March 10th, the “Magnificent Seven” were at the centre of a market sell-off with Tesla leading the fall at 15 per cent. While passive investment has been an alternative investment style compared to active management, some passive managers have not passed on the full cost savings to investors. For example, Vanguard LifeStrategy Fund charges 0.22 per cent compared to Fidelity Index World which charges 0.12 per cent. Explained another way, Vanguard LifeStrategy is almost 50 per cent more expensive for the same function that Fidelity Index World performs.
The rise of model portfolio services (MPS) since 2014 can also explain some of the decline in active management profitability. In 2014, MPS platforms managed around £350mm in assets compared to current figures of almost £18bn of assets under management. MPS allocators provide extra scrutiny on behalf of investors in that they prune underperforming funds within portfolios as part of the allocation strategy to give investors some extra comfort. Portfolio rebalancing is also easier for the investor since custody accounts can be linked directly to investor portfolios. MPS also has the advantage of utilising passive funds to gain exposure to an asset class when it makes sense and is cheaper for the investor. In sectors such as emerging markets or for example, resources, active management can be a better alternative when specialist expertise is needed to justify the added costs. Investors also have the comfort that asset management companies are being continually reviewed for suitability. Investing always involves some degree of risk but considering that MPS companies only charge between 0.10 and 0.15 per cent is a small price to pay for added peace of mind.
Regardless of whether you do this yourself or have an Independent Financial Advisor do this on your behalf it is always recommended that you review your portfolio annually to see if it is performing within parameters. With inflation hovering around 3 per cent taking not enough risk is as much of a concern as taking too much risk. Investment managers who are looking after your investments also require continuous scrutiny.
Peer reviewed: David Medland, Chartered Financial Planner APFS
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
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