Enormous sums of capital piled into passive products (index funds, ETFs) over the past decade. I get it. Why pay management fees if your portfolio manager can’t outperform the benchmark? However, let’s not be quick to dismiss active managers as dinosaurs.
Active managers perform an important function as they decide what a security is worth. In doing so active mangers set the market value weightings of the various components for numerous passive products that mimic one index or another. Fewer active managers means more valuation decisions are concentrated with a shrinking segment of the market. This causes exaggerated market volatility as passive funds ride in the wake of investment decisions made by fewer active managers. Were we to return to a market dominated by active managers in terms of number of managers and AUM, market participants would enjoy superior price discovery, better liquidity and less volatility (all else held equal).