Investors have been pouring their money into low-cost index funds at a clip, leaving some people wondering if the active management business is dead
Warren Buffett, the billionaire every investor looks for advice, has repeatedly said anyone who gives their money to someone to manage is essentially throwing money away.
Business Insider recently asked Martin Gilbert, the head of Aberdeen Asset Management, a $US385 billion dollar money manager, whether criticism against active management had any teeth.
In a wide-ranging interview with Business Insider, Gilbert said he agreed with Buffett in some cases.
“I think for some investors, just buying an index fund is the right way to go,” Gilbert said.”Good active fund managers can outperform indices consistently, so if you do find the right active fund manager it’s clearly better than a passive fund.”
He also said that “there are probably too many asset management companies in the world.” Aberdeen has announced a merger with UK peer Standard Life, in a deal that would create a group with a combined £581 billion ($US750 billion) in assets under management. Gilbert is due to be co-CEO of the combined group.
Here’s what Gilbert had to say:
Gilbert: I think for some investors, just buying an index fund is the right way to go. Good active fund managers can outperform indices consistently, so if you do find the right active fund manager it’s clearly better than a passive fund. In areas like US large cap, which are becoming more and more commoditized, even the Warren Buffett’s of this world would buy an active fund rather than passive.
BI: Where does it make sense to invest in active management?
Gilbert: It still makes sense to invest with active fund managers in areas like emerging market equities, global equities, Asian equities, emerging market debt. Any of these areas, there is still huge scope to outperform because of the inefficiencies in these markets. An example would be, you could underweight Russia, overweight India, or underweight India, overweight China. There’s a huge asset allocation opportunities, and huge opportunities in stock picking because the markets are relatively inefficient compared to the very efficient large cap markets.
BI: How do active managers fight back?
Gilbert: Asset management CEOs globally are looking at their business models. They’re looking at costs, they’re looking at making their businesses more efficient, because they’re seeing revenues under pressure all over the world.
BI: Is the problem that there are just too many asset managers?
Gilbert: I think there are probably too many asset management companies in the world, and I think the place to be is either big or small. The area where it is probably more difficult to be is in the middle ground, where you’ve got that cost of regulation, you’ve got the cost of buying your own research, you’ve got all the costs of running an asset management company without the benefits of a big income producing asset.
More from Frank Chaparro:
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